Bonanza Creek
Niobrara
Since its entry into the public markets in December 2011, Bonanza Creek Energy Inc.'s (NYSE: BCEI) shares have appreciated almost 350%. While the company's foray into the public markets is only two years old, its management team and expertise in the Wattenberg Field of northeastern Colorado extends well beyond a decade.
Michael Starzer, president and CEO of Bonanza Creek Energy, founded the first of four Bonanza Creek companies in 1999. Since then, the company's successors have increased their prominence by maintaining a close-knit management group and acquiring several liquids-rich assets. But BCEI's newest and current position in the horizontal Niobrara Shale may hold the most potential.
The Niobrara formation in the Wattenberg Field is one of the oldest and largest natural gas producing regions in the United States. Vertical development of both the Niobrara and Codell natural gas formations emerged in the 1970s but it wasn't until horizontal drilling and completion technology came along in late 2009 that tight oil and liquids rich gas were unlocked from these legacy formations.
Horizontal Niobrara wells in northeastern Colorado cost roughly $4.2 million to drill and complete, produce 313 Mboe over their lifetime and generate between 70% and 80% IRR at current prices for companies like Bonanza Creek Energy. Starzer believes this is one of, if not the most profitable basins in the country.
The transformation of the Niobrara into a horizontal play, Starzer says, can be attributed to the successful testing efforts by companies like EOG Resources, Noble Energy and Anadarko Petroleum. "Since 1999, we've been targeting the Niobrara to exploit the resources in the area," Starzer said. "A key component to our success is that we've been operating in the field for so long that we have a high expertise in it."
Bonanza Creek Energy is banking heavily on Niobrara/Codell development, and has high hopes for the play. Starzer says Bonanza Creek drilled nearly 100 wells to de-risk the play, and another 1,500 gross drilling locations have been identified.
"We have a great organic growth profile. We don't have to do a transaction to maintain top quartile growth. We can continue to develop internally," said Starzer. "Our highest return and lowest risk opportunity is drilling our inventory up, and we've got a lot of running room."
"With the inventory, our strong balance sheet, and our operating ability, we have the ability to maintain top quartile organic growth driven from the Niobrara/Codell for years," said Starzer. "Despite the tremendous growth in production we've had to date, we are projecting another 60% in production growth for 2013."
Looking ahead, the company believes 2014 will be an even more exciting year. Starzer said, "It's tough to single out just one catalyst to be excited about next year. I'd say our super section drilling is our most exciting catalyst. If the results are as favorable as everything we've done to date, it's an exciting expansion of our development into the future. It also allows us to incorporate extended reach drilling as well."
The "super-section" plan, officially announced on September 9, 2013, will incorporate wells to test key downspacing and stacking concepts in the Niobrara and Codell formations—the Niobrara B Bench, C Bench and Codell stacked test and a 40-acre spaced Niobrara B and C Bench test.
The company is anxious to accelerate its Niobrara production, and plans to drill 15 wells from three pads for testing in the fourth quarter of 2013. Results will determine its operation strategies, but the potential is "very exciting," according to Starzer. "We wanted to get on it as soon as we could."
But they won't stop there. Starzer believes the company can improve its drilling techniques and find additional ways to hit the next phase of growth.
In 2014, the company plans to implement a water delivery system, reduce its surface footprint in pad drilling, and use centralized gathering to ease periodic high line pressures. Bonanza's upside has Starzer optimistic about the entire picture.
Additionally, Bonanza Creek believes 247 MMboe net 3P reserves lie in its Wattenberg acreage, with crude oil totaling 60% of the reserves. As of year-end 2012, an estimated 32 MMboe had been booked.
"When you combine great assets with a great team at Bonanza Creek, and you take a look at the growth profile ahead of us, you can't help but feel optimistic about 2014 and the years to follow."