Private E&P Companies May Sell Niobrara Assets

Private exploration and production (E&P) companies may be tempted to consider selling assets in the Niobrara play, which potentially promising but relatively unproven versus other U.S. formations, as the merger and acquisition market is heated in part by Asian buyers willing to pay a premium to secure resources, according to an IHS study.

The company estimates that more than 550,000 acres in the Niobrara play belong to small private companies that could potentially be available as acquisition targets. IHS has identified a number of private E&P companies with assets in the Niobrara play, which extends from Wyoming and Colorado into Nebraska and Kansas.

Some of the largest private acreage holders include Cirque Resources, which holds 240,000 total net acres in the Denver-Julesberg (DJ) and Hanna basins, followed by Laramie Energy II, which holds 110,000 total net acres in the DJ and North Park basins. Bonanza Creek Energy Company follows with 63,000 total net acres in the DJ and North Park basins, which, according to the report, “is significant enough to attract a large company and reports 92 MMboe of net resources potential.”

The report noted that Simray Production drilled a 6,000-foot horizontal well in the Silo field in Laramie County in southeastern Wyoming. The well, completed in November 2010, posted an initial production rate of about 500 Boe/d, 95 percent of which was oil.

A previous IHS study, which studied production data from the Niobrara in comparison to wells in the Bakken/Three Forks shale play, concluded that the Niobrara is not yet a proven play and must be heavily risked.

Niobrara Potential

The Jake well, drilled by EOG Resources in 2009 in northern Colorado, sparked producers interest in the Niobrara shale play. In recent year, companies have been buying up Niobrara acreage in the Powder River and DJ basins. The play has been compared to the prolific Bakken shale play and become a focus as producers switch from exploring for natural gas to oilier liquids plays.

Noble Energy, Anadarko Petroleum Corp. and Devon Energy are some of the companies with stakes in the Niobrara. Noble, which holds over 830,000 net acres in the DJ Basin, is seeking to grow its Niobrara production to offset the natural decline from its offshore and other onshore production areas. Noble is acquiring addition 3-D seismic data in the DJ Basin to support its horizontal Niobrara program and plans to drill approximately 70 horizontal Niobrara wells this year.

"I'm really pleased with our growth in the DJ Basin, driven by both legacy as well as our new horizontal Niobrara drilling programs in Wattenberg," said Noble Chairman and CEO Charles Davidson during the company's first quarter 2011 earnings call. "We've now identified over 2,000 potential drilling locations on our 400,000-acre Wattenberg position are containing unrisk potential of 600 million barrels equivalent net to Noble Energy's interest. We're accelerating the program where we continue to see strong well results in the core and on the edges of the field," Davidson said.

Anadarko Petroleum Corp. Chairman and CEO James Hackett reported the company was seeing strong results in its operated program in the Niobrara play, and added an additional horizontal rig during the quarter in order to accelerate these activities.
"Given our premier position in the emerging Niobrara opportunity and the continued growth in the Wattenberg field, we recently acquired full ownership of the Wattenberg Processing Plant by purchasing BP's 93% stake," Hackett said during the company's first quarter 2011 earnings call.

The purchase further aligns Anadarko's midstream and upstream assets in this core area. The plant, combined with Anadarko's facility at Fort Lupton and Western Gas Partners' recently purchased Platte Valley plant, provides the company with a significant portion of the processing capacity in the greater DJ Basin. The Wattenberg plant should also be an excellent candidate for a future acquisition by Western Gas Partners.

Devon Energy reported last month that it would focus its exploration efforts on evaluating several Cretaceous oil objectives in the Rockies, including the Niobrara and Parkman on its 220,000 net acres in the Powder River Basin.

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