Anadarko Petroleum Corp.’s decision five years ago to build an onshore position in the United States to rival its massive Gulf of Mexico holdings is more than paying off, and in places that many have put way down on the go-to list. Land that the independent has long controlled in northern Colorado holds a massive liquids-rich resource potential of 500 million to 1.5 billion boe net, executives have disclosed this week.

Based on initial drilling results, the resource estimates for the Niobrara and Codell formations in the Wattenberg Field, which are about 70% weighted to liquids, may rival those in the Bakken and Eagle Ford shales.

“It’s a really cool play,” COO Al Walker said Tuesday at the Bank of America Merrill Lynch 2011 Global Energy Conference. “It takes into account an old field where we’ve been the operator through a predecessor company for 30 years. And it’s never been a more valuable asset than it is currently.”

The “best horizontal well to date,” the Dolph 27-1HZ, demonstrated an initial production (IP) rate of more than 1,100 b/d of oil and more than 2.4 MMcf/d of gas, resulting in an estimated ultimate recovery of better than 600,000 boe. The Dolph well, which cost less than $4 million to drill and complete, also paid out in “less than four months,” Walker said.

Anadarko has found “high” IP rates “across the field. We’ve had pretty good results from 11 wells, and they don’t represent what we believe they will perform at…”

Canaccord Genuity analysts said the early results suggest that after “accounting for Anadarko’s higher net royalty interest in the Wattenberg Field, we estimate these wells are 25% more capital productive than these other liquids-rich areas” that include the Eagle Ford Shale and the Permian Basin.

Tudor, Pickering, Holt & Co.’s team said it had “anointed” Anadarko “King of the Rockies” on the news, which “exceeds our higher-than-street expectations.” Anadarko’s share price also jumped early Tuesday; at midday the stock price was up about 2%.

Chuck Meloy, senior vice president, Worldwide Operations, who also spoke at the energy conference, noted that the field is “located right in the heart of one of our existing core areas. Our activity, which has primarily targeted the Niobrara formation within the Wattenberg Field boundaries, has achieved high liquids yields and excellent well performance with average IP rates of about 800 boe/d.

“The value of this resource is further enhanced by our extensive mineral ownership throughout the [Colorado] Land Grant that provides royalty revenue on both operated and nonoperated activity.”

Anadarko already is the largest net producer in Colorado’s Denver-Julesburg (DJ) Basin, with current output of more than 70,000 boe/d. The company has more than 350,000 net acres in the Wattenberg Field and operates more than 5,200 existing wells with an average working interest of about 96%; average net revenue interest is about 88%.

Anadarko holds not only acreage but it has amassed a considerable stable of operated midstream infrastructure in the field that includes takeaway capacity and natural gas liquids processing, as well as the White Cliffs Oil Pipeline, which together give the company “additional economic advantage,” said Meloy. “We expect the alignment of our assets, coupled with future investments in expansion opportunities, will continue to enhance field recoveries, access to premium markets and robust margins.”

Like many of the unconventional plays in North America that are now being rediscovered through horizontal drilling and hydraulic fracturing, the Wattenberg Field has been explored for a long time. Anadarko acquired the field, as well as a bevy of other properties, in 2006 when it paid $21.1 billion to buy Kerr-McGee Corp. and Western Gas Resources (see Daily GPI, June 26, 2006).

The acquisition set in motion Anadarko’s long-term strategy to create a domestic onshore presence that would rival its estimable deepwater portfolio, Walker said.

“What we did in 2006 was to focus on the onshore to complement the deepwater from an exploration and development perspective,” he told the audience. The base assets in the Wattenberg field alone added “25 Tcfe-plus” of resources.

Anadarko’s list of unconventional properties in North America includes a sizeable position in the Marcellus Shale, where its resource estimate is 6 Tcf-plus. There are 300,000 net acres of potential in the Utica Shale and more than 400,000 gross acres in the Eagle Ford. In addition, Anadarko has an enviable land position in several other unconventional plays that include the Haynesville Shale, another gassy play, as well as in several fields across West Texas.

Unlike the traditional dry gas or oily plays, which may offer “good wellhead economics,” the Wattenberg offers a “unique” opportunity, said Walker.

“It’s not a coincidence” that Anadarko acquired midstream assets in the Wattenberg area before announcing the latest well results, he said. Earlier this year Anadarko paid a subsidiary of BP plc more than $575 million to acquire full ownership in the Wattenberg Processing Plant (see Daily GPI, March 23). The company also now owns the Platte Valley Plant, a processor it bought from Encana Corp. And it has ownership in Colorado’s Fort Lupton Plant as well (see Daily GPI, Aug. 3, 2010).

“We wanted good takeaway for the gas and good wellhead economics for the liquids,” Walker said. Anadarko now has its sights set on 1,200-2,700 horizontal drill sites in the Niobrara and Codell formations, which are estimated to have ultimate recoveries of 300-600 million boe/well.

“At current prices, this gives us quite attractive economics in the field, as we think about capital deployment,” said Walker. “These are big numbers. We might spend $1 billion a year on this field, and it does a good job of generating cash…

“Everything you like to see in a play, this pretty much has it,” he said of Wattenberg. “It’s largely liquids and it starts out from a run, not a stand, like in the Utica where we don’t have production. [The Utica Shale] has a lot of potential…it may be one of the better onshore plays, but most importantly, it doesn’t have existing infrastructure. We’re ahead of the curve in solving that…”

What “supercharges” the economics in the Niobrara and Codell plays are the mineral ownership that Anadarko holds, he said. The company has a “royalty benefit from nonoperated wells” on the state Land Grant lands. “We don’t have to drill wells in order to benefit from it. That really helps us. It’s great to see our neighbors doing well and in turn, it’s great from a royalty perspective. It’s not an insignificant position. And it’s one we’ve been waiting a while to talk about.”

What attracted Anadarko to the development were the liquids, and that’s why it’s also unique, said Walker. “There’s a lot of natural fracturing within the Niobrara and Codell, and that helps with the recovery perspective. A significant number of vertical wells have been drilled over time in the field. We have good data and well control data.”

Based on the drilling results from the first 11 wells, Anadarko’s management team believes the “unique characteristics in horizontal drilling over time will allow us to take further advantage of a great field.”

The Woodlands, TX-based producer is planning further tests to define the optimum spacing and lateral lengths for the Niobrara and Codell formations. It also plans to increase the Wattenberg horizontal drilling program to seven rigs by the end of 2012, while increasing the number of horizontal wells drilled next year to about 160 from about 40 in 2011.

The Wattenberg results in Colorado may only be the tip of the iceberg, said Walker.

“Outside the Wattenberg field, we’re also exploring additional liquids-rich horizontal opportunities where we hold another 550,000 net acres in the greater DJ Basin and 360,000 net acres in the Powder River Basin. Each area is prospective for the horizontal Niobrara, as well as other horizons that we will evaluate over time.” Earlier this month Walker said that as Anadarko looks “outside the greater Wattenberg area, and we understand better the opportunity associated with the Niobrara as well as other opportunities, we may find ourselves at some point wanting to move forward with a joint venture there” (see Daily GPI, Nov. 3).

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