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Raymond James: Don't Count Out DJ-Niobrara Yet

While the plunge in global oil prices has dampened prospects, the Denver-Julesburg (DJ) Basin/Niobrara Shale should not be totally discounted in the near future as a region for potential growth, a report from Raymond James & Associates indicated Monday.

"We should still see healthy growth out of the region in the short term, and the stacked play potential should really pay off over the longer term," said the report's authors. While they see the possibility of "sporadic periods" of midstream constraints, the report noted that those situations will "subside over time and allow plenty of runway for E&Ps to accelerate production, if pricing allows it."

Noting that none of the United States’ liquids plays will be immune from the price drop impacts, Raymond James is not ready to discount the DJ Basin's future production growth and related midstream build-out based on an updated review of the region's geological and wellhead economics. The report concluded that any slowdown of drilling activity likely will be driven by cash flow for exploration and production (E&P) operators, and not because the economics don't still work at $60/bbl oil.

Located predominantly in Weld County in northeast Colorado, the DJ Basin is about half the size of the Midland Permian in Texas, but the basin has "stacked potential," with the Wattenberg and Redtail fields offering equal potential for horizontal drilling and hydraulic fracturing, the analysts said.

Noble Energy went into this year at the start of a multi-year aggressive drilling program in the DJ Basin, anticipating drilling 11 million lateral feet in 2014-2018 under an accelerated version of the company's extended reach lateral program (see Shale Daily, Dec. 13, 2013). This past summer, Synergy Resources Corp. entered a joint development agreement with Johnson Production Corp. and Kodiak Petroleum Inc. to drill up to 10 oil wells and develop acreage in the Nebraska portion of the DJ Basin (see Shale Daily, Aug. 18).

"The risk of drilling these wells [in the DJ-Niobrara] are mechanical/completion-related -- there is little dry hole risk," according to the report. While the wells are smaller (350-400,000 boe) than some other higher profile oil plays, they are "meaningfully cheaper" at about $4-5 million/well in the horizontal-drilled Niobrara B shale play.

The midstream activity will not likely let up either, said the Raymond James analysts, noting there is a chance of overbuilding, but it is not likely to happen. The report identified at least three of five pending projects as "highly likely" to get built, and collectively they represent nearly 300,000 b/d of added takeaway capacity.

With the 340,000 b/d Enterprise Products Partners LP Bakken-to-Cushing, OK, line now canceled, "it's looking like our most likely scenario is that the second White Cliffs expansion [65,000 b/d], the Pony Express [100,000 b/d] and the Grand Mesa [130,000 b/d] projects are the only pipelines to get built out in the near term," the report said.

ISSN © 2577-9877 | ISSN © 2158-8023

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