School is out, but Niobrara operators are still learning

Not surprisingly, many of the speakers at Hart Energy's recent Developing Unconventional Oil (DUO) conference in Denver spoke enthusiastically about the Niobrara shale. After all, this enticing new prospect is just a few miles to the east of the city, though it also extends north into Wyoming and Nebraska.

What makes the play confounding is its variability. Jessica Chipman, associate, E&P Research at Tudor, Pickering, and Holt (TPH), reviewed the results of a 2011 publication that looked into the play in detail in a talk titled "The Niobrara: A look into the weird science of tight, light oil plays." After EOG's Jake discovery in 2010, she said, a land rush ensued as companies snapped up acreage and touted the play as "the next Bakken." Some of those companies ended up with very disappointing well results.

Chipman's team looked at every single well that had been drilled to date and learned two things: one, it's early days for the Niobrara yet, particularly outside of the Wattenberg field; and two, the reservoir is quite variable, so well location is very important.

A Noble rig drills ahead at a Niobrara well site in Weld County, Colorado. The company expects the play to have about 1.4 Bbbl of net oil resource potential. (Photo courtesy of Noble Energy Inc.)

In examining the dusters, almost every early disappointment was drilled without seismic. Wells that were drilled out of zone also encountered problems with proppants swelling in the surrounding marl formations.

Another discovery was that resistivity and thermal maturity vary throughout the basin, leading to large changes in water saturation and areas where there has not been enough heat and pressure to establish a hydrocarbon system.

What matters, the report concluded, was a checklist that includes seismic, resistivity studies, thermal maturity, pressured reservoirs, natural gas in situ, proper well orientation, and the presence of natural fractures.

A Noble endeavor

The companies that are willing to follow this checklist are encountering considerable success. One company that seems to do no wrong these days – witness its success in the Mediterranean Sea – is Noble Energy.

Ted Brown, a senior vice president at Noble, provided the opening address at DUO. He talked about the company's current position in the play and its plans to ramp up production.

The company has plans to drill more than 150 wells this year in the Niobrara. It is testing longer laterals, expanding the play to the northeast, and studying well spacing.

In Noble's view, the Niobrara's Denver-Julesburg (D-J) basin has joined a select list of productive plays.

Brown said that Noble is expecting a 50% compound annual growth rate in the Niobrara during the next five years, which would essentially double this year's production. In addition, Noble expects the play to have about 1.4 Bbbl of net oil resource potential.

Production in the D-J basin is about 55% liquids, and the company thinks that number can be bumped up to about 66% in the next five years. "That will be driven by an aggressive horizontal drilling program. When you examine the basin and couple that with executing in a responsible and prudent manner, we think it will be a recipe for success," Brown said.

Brown talked about Noble's satisfaction in burrowing into the Niobrara as he emphasized that recent results in Northern Colorado are exceeding expectations.

"As we examine our 640,000-acre horizontal position, which includes Wattenberg and Northern Colorado, we are averaging 45% to 50% rates of return," he said.

Noble has reported successful results with extended-reach laterals in the play, and Brown said the company hopes the positive results can be repeated. Twelve to 15 extended-reach laterals will be drilled later this year, he said. "We've also developed a concept in which a number of wells flow into a central production facility. It minimizes the footprint and delivers significant savings. It's also about limiting water and water-hauling, and it results in some dramatic savings. We estimate about 22 million truck miles will be eliminated, which yields about a 9% reduction in emissions. So it's a win-win situation for Noble, landowners, the communities we operate in, and the entire state of Colorado," Brown said.

In Colorado, Brown said that Noble has made a commitment to incorporate the use of natural gas into all phases of its operation. "And why not?" he said. "There are so many benefits here when you talk about air quality, fuel savings, and reducing your footprint."

In summing up the Niobrara, Brown said, "We've just not hit any disappointments in the Wattenberg or in Northeast Colorado."

A Marathon position

With about 1 million net acres across four unconventional plays in North America, Marathon Oil Corp. has a resource base that should provide more than 1 Bbbl of incremental reserve bookings over the years, said James Bowzer, vice president, North American production operation, Marathon.

What makes the play confounding is the reservoir’s variability, so well location is very important, said Jessica Chipman, E&P Research associate at TPH. (Photo courtesy of Tom Fox)

The company entered the Niobrara about 18 months ago. "We picked up about 200,000 acres in this play," Bowzer told DUO participants. "We have about 144,000 acres net to Marathon, although we operate the acreage on a gross basis.

"We've been fortunate enough to bring in a good friend of ours – Marubeni – into the play with us in a 70/30 joint venture," he said.

Marathon's Niobrara resource base is relatively small compared to other plays, primarily because the company is in the exploration phase with the play.

"We've got two rigs running right now. We are focusing largely in Weld County at this point in time. We're looking at additional spacing tests during 2012.

"For us, we have consistently said that school is still out on the Niobrara. There is no doubt there are going to be sweet spots. The Wyoming portion of the play in the northern portion of the basin doesn't look as good. There are portions of the Colorado play that look really good.

"As you go further into the Wattenburg field, it gets pretty gassy," he explained. "Given where gas and NGL prices are in the Rockies, that's not our target."

The real issue is going to be how to find the sweet spots, he said. "We haven't eliminated or defined anything. I think it took us over a year in the Bakken to get that kicked off.

"There are quite a few targets to test here. Clearly, there is not as much oil in place as in the Bakken. But you don't need a Bakken to make a good play. So we don't let that fool us when making our decisions," he added.

PDC likes Wattenberg predictability

Some companies might be hesitant to put all of their eggs into the unconventional basket. PDC is not one of those companies.

With all of its assets in either tight gas (the Piceance basin), shale gas (Marcellus shale), or shale oil (Niobrara and Utica shales), the company controls a total of 370,000 acres with 4,000 drilling locations. With a goal to have 50% of its portfolio in liquid plays, the company is focusing on the Niobrara and Utica for most of its activity.

In the Niobrara, PDC recently acquired an additional 35,000 acres for US $330 million. Scott Reasoner, vice president of western operations for PDC, told the DUO crowd that the company has been working in the Wattenberg field for a long time. "But things are changing dramatically with the horizontal focus," he said. PDC will have a second rig running in the field in 3Q 2012 and plans to bring in a third rig in 2013.

The latest acquisition has had an immediate impact, he said, providing a 10% increase in total production and a 22% increase in liquid production, up to almost 11,000 bo/d.

While the D-J basin as a whole has proven to be rather unpredictable, Reasoner said the Wattenberg field is highly predictable. The company currently has 27 wells in the field, many of which offset some of the best wells in the play. Currently it is testing its wells to measure frac rate; flowback rates; fluid design; casing design; and drilling optimization, including pad drilling. Plans for 2012 include targeting the A and C members of the Niobrara as well as the B member, testing other D-J basin zones, and examining reduced spacing and pad drilling options. The company also plans to test horizontal Codell potential, with its first well to be hydraulically fractured and tested in June.

Overall, he said, PDC's acreage in the Wattenberg field is characterized by predictable productivity, production performance that is not affected by drilling orientation, microseismic data that show fracture orientation and distribution, and refinements in artificial lift.

Whiting's expansion

The first time Denver-based Whiting Petroleum Corp. presented at one of Hart Energy's conferences, its market cap was about $500 million. By May 2012, the company had grown to about $6 billion.

Going forward, Whiting Petroleum plans to spend about 47% of its budget in the Rockies, where 67% of its net daily production is derived. “We have about 6,000 potential locations to be drilled horizontally for unconventional oil in the US,” Chairman and CEO Jim Volker told DUO attendees. (Photo courtesy of Tom Fox)

With solid success in the Bakken, Whiting has expanded its operations in the Niobrara, where it brought in a couple of wells at 400 boe/d.

"There are a great many opportunities facing us," Chairman and CEO Jim Volker told DUO attendees. "We have about 6,000 potential locations to be drilled horizontally for unconventional oil in the US. We are really going to get after it in the next couple of years."

Today, Whiting is producing about 80,700 boe/d, a 14% increase, quarter-over-quarter from 4Q 2011 to 1Q 2012 from its 700,000 net acres acquired at a weighted-average cost of US $479 per acre. About 86% of its reserves are oil, and 67% of its net daily production is from the Rocky Mountains.

Currently it has 421 3P drilling locations in the Central Rockies and 1,416 total drilling locations in the region. It plans to spend $85 million in the region in development in 2012.

Its Redtail prospect in Weld County covers 97,267 gross (74,808 net) acres. Recently, the company completed the Wildhorse 16-42H well with a 24-hour initial production (IP) of 430 boe/d. It also brought in the Wolf 35-2623H with a 24-hour IP of 426 boe/d. Because of these results, Bowzer said, the company is planning to increase its 2012 drilling program from eight wells to 17 wells.

Going forward, Whiting plans to spend about 47% of its budget in the Rockies, with another 6% going into the Permian basin. "We are really putting our money where our mouth is with respect to unconventional oil plays," Volker said. "This year, we plan to drill more than 250 wells, and almost all of them will be directed toward one sort of unconventional oil play or another."

"Overall, unconventional oil has done something for Whiting that I think is very difficult to do in this business, and that is to have great high margins. In our first quarter of this year, we set a new record with $74.17 per boe net margin, which was 66% of our net boe price."

While the Niobrara still lags behind the Bakken in production and overall optimism, continued enthusiasm about the play promises to rocket it into the brackets of one of North America's best shale oil plays.