TIGHT GAS DRILLING BRINGS COLORADO'S WATTENBERG FIELD ITS BUSIEST YEAR

June 21, 1993
Drilling in northeastern Colorado's Wattenberg field shows no sign of slowing down even though the federal tax credit applicable to tight sand gas wells was not extended, says a report by Petrie Parkman & Co., Denver. Wattenberg's main operators plan to drill more than 1,000 wells in the field this year, making it one of the busiest in the U.S. Most present drilling targets gas in Cretaceous Codell and Niobrara low permeability sands at 6,700-8,200 ft, but the field has seven potential

Drilling in northeastern Colorado's Wattenberg field shows no sign of slowing down even though the federal tax credit applicable to tight sand gas wells was not extended, says a report by Petrie Parkman & Co., Denver.

Wattenberg's main operators plan to drill more than 1,000 wells in the field this year, making it one of the busiest in the U.S. Most present drilling targets gas in Cretaceous Codell and Niobrara low permeability sands at 6,700-8,200 ft, but the field has seven potential pay zones.

Petrie Parkman expects activity to strengthen this year from the record 631 wells drilled in Wattenberg in 1992. That represented 12% of U.S. gas well completions tallied by Petroleum Information Corp. for 1992. This is slightly more wells than were drilled in the heavy oil fields of Kern County, Calif., for years the most drilled U.S. county.

The field has supported 20-30 active rigs in recent months. Wattenberg's high drilling levels have resulted in restricted production due to well connection delays, high gathering system pressures, and sporadic materials shortages. Legislation that could set minimum operating standards is being considered due to surface owner conflicts.

PI noted in a recent report that Colorado's gas production averaged 953.1 MMcfd in 1992, up 17.4% from 1991 output. Wattenberg produced 103.3 bcf during 1992, second only to Ignacio-Blanco field's 109.59 bcf.

Wattenberg's 1992 crude and condensate production of 5.05 million bbl was second only to Rangely field's 11.783 million bbl.

FIELD STATISTICS

Wattenberg field, in the Denver basin 35 miles northeast of Denver, was discovered in 1970. It has produced from Cretaceous Parkman, Sussex, Shannon, Niobrara, Codell, J sand, and Dakota.

More than 2,000 wells have penetrated shallower formations in the field, but fewer than 100 have targeted the deeper Dakota as a primarily objective. Few of those were tested, Petrie Parkman said.

Total drilling in the field is estimated at well over 4,000 wells, of which 95% or more were completed as producers.

Some operators target Codell with slim hole completions that involve 2 7/8 in. tubing and omit the conventional 4 1/2 in. production string.

The cost to drill and complete is $125,000-130,000 for a Codell-only slim hole, compared with $230,000-240,000 for a conventional Codell/Niobrara completion.

"This large differential allows acreage positions on the outskirts of the field's main producing fairway to be developed economically, despite lower quantities of recoverable reserves," Petrie Parkman said.

Conventional completions are more numerous because the slim hole technique is not practical in multipay areas.

Some engineers believe Codell and Niobrara are in communication. However, a typical Codell/Niobrara completion includes a limited entry frac with each zone treated separately. Operators use 190,000-350,000 lb of sand on Codell and 200,000-230,000 lb on Niobrara.

SURFACE, SPACING

Many Wattenberg surface owners do not hold mineral rights and receive only about $2,000/well for surface damages.

Tensions have arisen in some cases over failures by operators to give adequate notice before moving on locations, promptly restore sites, and maintain surface facilities.

Drilling is often clustered in first and fourth quarters to minimize conflict with farming, and some operators are considering more directional drilling from central pads.

Colorado allows 40 acre spacing in Codell, Niobrara, Shannon, and Sussex and at least one operator has considered the engineering need for 20 acre infill drilling in parts of the field. Spacing is 320 acres/well for j sand and Dakota.

If all wells allowed under present rules were drilled, 1 sq mile could contain as many as 68 wells. Petrie Parkman notes that because of the ability to tap multiple formations from a single well bore and economic considerations, a maximum of 16 wells/sq mile is more realistic.

OTHER ECONOMICS

Codell/Niobrara and Codell-only wells were economic with gas prices well below $1.50/Mcf because of the ability to process large amounts of acreage while carefully controlling costs, Petrie Parkman said.

The current drilling round started in 1991 when the gas price outlook was much more pessimistic than it is today.

"Average estimated gross recoverable reserves attributable to the Codell-only slim-hole location is approximately 30,100 bbl of oil equivalent compared to 62,500 BOE for the Codell/Niobrara well. For each of the two wells, in excess of 50% of the recoverable reserves are produced within the first three years.

"With a drilling time of only about five days, a well can be connected to sales within 30 days from the spud date," Petrie Parkman noted.

Equalizing oil and gas prices resulted in a model that, using a 12.5% discount rate, yielded cash flow from the Codell/Niobrara well with a present value of $210,629 vs. $107,048 for the slim hole well. Rates of return are 66% and 59%, respectively.

Meanwhile, a Sussex/Shannon recompletion typically costs $50,000-65,000 and can yield incremental reserves of 185 MMcf of gas and 4,000 bbl of oil. In certain areas of the field, Codell/Sussex wells are drilled for about $275,000, higher than Codell/Niobrara because a 350,000 lb frac job is required for the Sussex.

Main operators in Wattenberg field, all with offices in or near Denver, are Gerrity Oil & Gas Corp., Basin Exploration Inc., Snyder Oil Corp., HS Resources Inc./Elk Exploration Inc., Barrett Resources Corp., Prima Energy Corp., Amoco Production Co., and Union Pacific Resources Co.

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