Permits and production are soaring in the Niobrara Shale where Chesapeake Energy is indicating it has unlocked some important finds as it eyes the play as a significant contributor to its strategy for expanding its production of natural gas liquids (NGL).

Along with Utica Shale in Ohio where it is also a major player, Chesapeake COO Steve Dixon told a 2Q2012 conference call with financial analysts earlier this month that "Niobrara and the Powder River Basin should become a significant contributor to our liquids growth," adding that the company is also well positioned to take advantage of what he called "a potential rebound" in natural gas prices next year.

Dixon said that Chesapeake has identified more than 1,000 potential locations in the Niobrara core.

In a similar vein although a part of reporting a hefty 2Q2012 loss, Quicksilver Resources Inc said it continues to see improvements in well performance and drilling/completion cost in its Colorado Niobrara project (see Shale Daily, Aug. 8). Quicksilver plans to drill one well and complete two wells for the remainder of 2012 and defer construction of a planned gathering line and related facilities.

Similarly, Noble Energy Inc. drilling in the Niobrara portion has picked up rapidly, CEO Charles D. Davidson told analysts recently in the company's second quarter conference call (see Shale Daily, Aug. 14). "It's hard to believe it was only 15 months ago when we began seeing the upward inflection point in production from the horizontal Niobrara that told us that this program truly had the potential to dramatically change our company," he said.

The Wyoming Oil and Gas Conservation Commission's (WOGCC) has reported growing numbers in the Powder River Niobrara, listing drilling permits issued at nearly 430 for Campbell and Converse Counties so far, compared to 485 issued last year over the full 12 months. In 2010, drilling permits requested in the two counties totaled 168.

So far this year in the Niobrara formation, 800,000 barrels of oil equivalent (boe) have been produced, nearing the 843,000 boe produced last year for the full 12 months, according to the WOGCC, which noted that most of the data was as of the end of the first half of the calendar year (June 30).

On the recent conference call Chesapeake's Dixon related strong overall growth in liquids production in the second quarter prompting an increase of the company's projects for 2012 and 13, with production moving up to as high as 170,000 b/d next year. The company's continued move away from dry gas drilling to oil and liquids was underscored.

"In the Powder River Niobrara play we have finally cracked the code with numerous recent wells drilled in our newly identified over-pressured, liquids-rich core area of 100,000 net acres delivering outstanding flow rates of more than 1,500 boe/d," Dixon said. "However, due to limited gas takeaway infrastructure and processing facilities, production growth on the Powder River Basin has not yet begun in earnest, but we expect to see this area take off in 2013 and beyond."

Beyond the core, Dixon talked bullishly about a broader area of 350,000 acres in the Powder River leasehold as being prospective for other formations, such as Teapot, Parkman, Sussex, Shannon and Frontier formations. "We currently are running eight rigs and plan to ramp this up to 11 by year end," Dixon said.

Chesapeake has its Chinese partner, CNOOC, paying for 67% of the drilling costs in the Powder River Basin, and it plans to stay at least through 2014 as Chesapeake continues its cash-carry strategy that amounted to $520 million as of June 30.

Dixon ended this prepared remarks on the conference call by making it "abundantly clear" that Chesapeake was sincere about pursuing a liquids-rich strategy. He said drilling costs and completion rates should continue to fall.

In response to separate questions from analysts, Dixon said while it is still pretty early in its development, Niobrara has produced improvements in Chesapeake's well costs. "We have certainly found a sweet spot with this over-pressured, high-in-liquids basin center that we are really hoping to get some production history to improve on."

"We have got some big improvements to make on the cost said, and we have been still doing a lot of science in defining this sweet spot."

Earlier this year, Colorado was preparing to emerge as a major oil producer, thanks to developing interest from oil companies in the Niobrara, according to a March report by market intelligence experts GlobalData. The new report shows that the state has accounted for most of the shale play's production in previous years, and a high number of approved well permits distributed to major drilling companies during 2011 implied that the Niobrara shale was primed to see impressive levels of production in the future.

GlobalData's report said the Niobrara shale has emerged as one of the most promising oil-producing shales in the United States, and is currently witnessing substantial growth in oil production, especially in the DJ Basin and Powder Basin, where major drilling activities are taking place. This can be primarily attributed to the Colorado Niobrara shale formation, which in 2011 accounted for nearly 87% of the total production from the entire shale play.

In addition to the earlier mentioned players, EOG Resources, and Carrizo Oil & Gas also represent some of the major drilling companies directly involved in Niobrara shale production, applying what they are calling "innovative drilling techniques" to extract large amounts of oil and gas. During 2011, EOG Resources gained the most approved drilling permits in Colorado, obtaining 271 permits to operate and drill in the play, according to past industry reports.

According to company reports analyzed by NGI's Shale Daily, Anadarko Petroleum with 900,000 net acres is the largest Niobrara-Denver Julesburg acreage holder. Rounding out the top five are Noble Energy (880,000 net acres), EOG Resources (220,000 net acres), Black Raven Energy (178,000 net acres) and Chesapeake Energy (147,000 net acres).