Oil companies ramp up operations in liquids-rich Niobrara shale play

Similar to the mature Bakken shale play, the 'oily' Niobrara is considered ripe for investing

It's no surprise that petroleum investors have been selling their positions in dry gas areas due to sustained low prices for natural gas. Many of them have decided to refocus on oil and gas liquids, which command a better price than dry gas, and one of the most promising areas for investment is the Niobrara Shale of northeastern Colorado, southeastern Wyoming, and smaller parts of Nebraska and Kansas. Most of the Niobrara Shale lies in the Denver-Julesburg Basin, or DJ Basin.

Still an emerging play, the Niobrara is in its early stages and there is a veritable "land rush" by companies seeking to lease land for future drilling. It has been characterized by some as a "mini-Bakken" or a "Neo-Bakken." The Bakken shale play is farther north in North Dakota and Montana and in parts of Western Canada and is a more mature play in terms of its drilling history.

In a report issued late last year, Jefferies & Co. Inc. called the Niobrara "ripe for investing," cautioning that the play "is not well understood and data has been spotty." It adds that limited results from EOG Resources and Noble Energy have, thus far, been promising.

Other players in the Niobrara to date include Anadarko Petroleum, PDC Energy, Chesapeake Energy, Rosewood Resources, Encana Oil & Gas (USA), Fidelity Exploration & Production, Augustus Energy Partners, Petro-Canada Resources (USA), Mountain Petroleum Corp., Rosetta Resources, Samson Oil & Gas, Voyager Oil & Gas, Slawson Exploration Co., Marathon Oil Corp., and ConocoPhillips.

In April, Houston-based Marathon Oil agreed to sell a portion of its Niobrara Shale-focused acreage to Marubeni Denver Julesburg LLC, a subsidiary of Japanese conglomerate Marubeni Corp., for $270 million, or about $5,000 per acre. Marubeni will receive a 30% undivided working interest in Marathon's 180,000 net acres in the DJ Basin of southeastern Wyoming and northern Colorado. Over the years, Marubeni has had a long-standing relationship with Marathon as a partner in an LNG project in Equatorial Guinea in West Africa and calls them "a reliable partner," which made the Niobrara decision a comfortable fit for both companies.

A Marubeni spokesman commented, "We believe that this project, including future expansion and potential new businesses associated with the project, will become a solid base for Marubeni providing cash flow and profit in the mid to long term because our acreage position in the Niobrara is believed to be prospective."

For its part, Marathon's Dave Roberts, executive vice president, upstream, said, "Our significant acreage position in the DJ Basin reinforces our strategy of targeting unconventional, oil-focused resource plays in the US that provide low-risk, scalable growth opportunities. It also allows us to apply expertise developed over the past several years in other unconventional shale plays, such as the Bakken formation in North Dakota."

Marathon began leasing acreage in the DJ Basin in 2010. The company is currently acquiring 2-D and 3-D seismic data and expects to participate in 8 to 12 gross exploration wells by the end of the year. Marathon will be operator of the jointly owned leasehold.

Houston-based Anadarko Petroleum is purchasing BP America's 93% interest in the Wattenberg processing plant in northeastern Colorado for $575.5 million. The plant has the capacity to process about 195 MMcf/day of natural gas and 15,000 barrels per day of gas liquids and gas condensate. Upon closing, Anadarko will operate and have 100% ownership of the plant.

An Anadarko spokesman said the company considers this a strategic acquisition that "further aligns our midstream and upstream assets in one of our expanding core areas." Anadarko is the largest producer in the Wattenberg field with current sales volumes of about 63,000 boe per day. He adds that the company's early efforts in the emerging horizontal Niobrara shale play are very encouraging.

Anadarko has roughly 900,000 net acres in the DJ Basin.

Voyager Oil & Gas currently controls an interest in 44,000 net acres in the DJ Basin's Niobrara shale play in a joint venture with Slawson Exploration Co. Last year's agreement, valued at $7.5 million, gives Voyager a 50% working interest in Slawson's net acreage in Weld County (Colorado) and Laramie County (Wyoming).

Voyager, based in Billings, Mont., controls about 24,000 net acres in the Williston Basin in Montana and North Dakota and has developed expertise drilling in the Bakken shale play.

Slawson is one of the largest liquids producers in the DJ Basin and recently announced it would speed up drilling plans in the area.

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