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Information on the Niobrara-DJ Basin
The Niobrara-DJ Basin is a crude oil and liquids rich gas play that is located in Northeast Colorado and Southeast Wyoming. The Niobrara is located in several areas of the Rocky Mountains, including the Powder River in Wyoming and in parts of Northwest Colorado. The portion that lies within the DJ Basin is a combination shale/marl/chalk/sandstone formation that lies at depths 5500’-8500’, and is comprised of three separate zones, or “benches:” the A, B, and C benches. Just below the C bench sits the Codell tight sands formation, which is more of an emerging natural gas play, but is also garnering the interest of operators, especially those who are able to drill commingled Niobrara and Codell wells. However, the Codell is generally not prospective throughout the entire DJ Basin, since the formation tends to thin to the east. Operators have also begun drilling or are planning to test the deeper Greenhorn interval, but we believe early results from that formation have not been all that promising thus far.
The Niobrara within the DJ Basin is actually a combination of two basins in one. On the eastern side of the DJ Basin, the Niobrara reservoir holds widespread biogenic gas deposits that are similar to those in the Antrim Basin in Michigan. This “biogenic” Niobrara gas lies at shallower depths within Northeast Colorado, and parts of Nebraska and Kansas, than the more oil rich “thermogenic” Niobrara that we described in the first paragraph. The remainder of this article focuses on the “thermogenic” portion of the Niobrara.
The DJ Basin is certainly no stranger to exploration and production activity. The Wattenberg Field, which is located primarily in Southwest Weld County, Colorado, was discovered in 1970, and was one of the 15 largest proved gas fields in 2009, per the U.S Energy Information Administration. The majority of production from the Wattenberg to date has come from vertical drilling in the Niobrara/Codell formations, and the Muddy J Sandstone, which is a tight sands play that lies several hundred feet below the Codell.
EOG Resources kicked off the trend toward horizontal drilling in the Niobrara DJ in October 2009, with its Jake well at the Hereford Ranch Field in Weld County. Much of the horizontal drilling for the Niobrara and the Codell that has occurred since has been in the Wattenberg Field in Weld County, Colorado, and to a lesser extent in and around the Silo Field in Southeast Wyoming. These have been the most heavily targeted areas in part because many companies already held acreage in those areas, and also because those regions have existing infrastructure.
But companies have started to venture outside of Weld County in order to test the Niobrara as well. For example, ConocoPhillips is in the process of appraising their Niobrara-DJ acreage south of Weld County in Adams, Arapahoe, Douglas, and Elbert Counties, CO. The company is running 1 rig to drill 19 horizontal test wells in 2014, and while things are still in the early stages, they call their early appraisal results “encouraging.” In addition, Wunderlich Securities’ Irene Hass told NGI’s Shale Daily in July 2014 that "to add even more drama, EOG Resources Inc. quietly has been working on the Wyoming side in a new sweet spot east of Cheyenne [WY] in the Codell/Niobrara. Producers have begun to have a handle on the play, all good and part of a natural process. This is a big deal in the Niobrara, with discoveries three times in four years.”
Although the DJ Basin has been one of the fastest growing producing areas in North America in recent quarters, we believe that production would have grown even faster had it not been for a lack of natural gas processing capacity in the area, especially within the liquids rich Wattenberg Field. This issue should be relieved in part by mid-2015, when DCP Midstream Partners, who is the major midstream provider in the DJ Basin, is scheduled to put its 200 MMcf/d Lucerne II cryogenic processing plant in Weld County into service. On the crude oil side, Pony Express has proposed to increase its crude oil takeaway capacity from the DJ Basin by 400 MBOPD by the second half of 2016, and ARB Midstream LLC is planning to build its Niobrara Connector crude oil transloading terminal in the heart of the DJ Basin by the second half of 2015.
However, this extra processing and takeaway capacity may not matter all that much in the shorter run, if falling crude oil prices curtail drilling activity in the area. Executives with Bonanza Creek, PDC Energy, and Synergy Resources declared at the Canaccord Genuity investor conference held in New York City in October 2014 that while they were not all that concerned about WTI prices in the lower $80s, they each would likely throttle back their respective drilling in the Wattenberg if WTI prices fell below $70 per barrel.
Colorado: Adams, Arapahoe, Boulder, Broomfield, Douglas, Elbert, Larimer, Jefferson, Morgan, Weld
Wyoming: Laramie, Goshen, Platte
Natural Gas: Cheyenne Hub, Cheyenne Plains, CIG, PSCO, Rockies Express, Southern Star, Tallgrass, WIC
Crude Oil: White Cliffs, Pony Express
NGLs: Enterprise NGL Rockies, Front Range, Overland Pass, Wattenberg - Buckeye NGL Line