By now, even your neighbor knows about the opportunities available in the Bakken, the Eagle Ford and the Marcellus. But there's a relatively unknown North American basin where production increased more than 30% since last year, and analysts expect production to double to between 225,000 and 250,000 barrels (bbl.) per day by 2016.

Formally known as the Denver-Julesburg (DJ) basin and located in eastern Colorado, the DJ basin also extends into Wyoming, Nebraska and Kansas. Directly under the Denver metropolitan area, it contains part of the more famous Niobrara formation. By way of comparison, current production of 110,000 bbl. per day in the DJ basin is about one-fifth of the current Bakken production. Parts of Colorado have been considered relatively mature fields known for natural gas. The introduction of horizontal drilling makes previously unrecoverable oil, natural gas and natural gas liquids (NGLs) economically sound. See adjoining stories.

The first well in the DJ basin was drilled in 1901—one of the first in the western United States.

Graph performance chart

On a trailing 12-month basis through September, the AMZI has returned 19.5% on a total return basis versus the S&P 500 of 12.2%.

Like the Bakken to the north, the area is remarkably under-served by pipelines. This need is being rapidly filled by master limited partnerships (MLPs) with most projects expected to be in service by 2013 or 2014. Currently, the White Cliffs Pipeline is the only crude oil line that directly connects the DJ basin to the hub in Cushing, Oklahoma. Owned by SemGroup, Anadarko and Western Gas Partners, this line is being expanded to double its current capacity by 2014. Currently operated by Rose Rock Midstream, a subsidiary of SemGroup, this pipeline is a likely candidate to be dropped down to Rose Rock. Rose Rock also owns the Plattville facility—a processing center connected to White Cliffs that has 220,000 bbl. of storage capacity.

A major player in the area, DCP Midstream, expects to double its processing capacity in the basin by the end of 2014. DCP owns the Wattenberg Pipeline, which has 22,000 bbl. per day of NGL takeaway capacity going to Conway, Kansas. The majority of domestic NGL processing capability is located in Mont Belvieu, Texas. The goal of all North American NGL takeaway capacity is to connect the NGL supply centers, such as the DJ basin, with Mont Belvieu, or a major pipeline or hub that leads there.

In April of this year, together with Enterprise Products Partners and Anadarko, DCP announced another NGL pipeline, the Front Range Pipeline, which will extend from the DJ basin to the Texas Panhandle, where it will connect with both the Mid-America Pipeline and the Texas Express Pipeline. Initial capacity of 150,000 bbl. per day can later be expanded to 230,000 bbl. per day. Front Range is expected to begin service in the fourth quarter of 2013.

Other MLP players in the DJ basin include ONEOK Partners LP, which owns a 110,000 bbl. per day NGL pipeline to Conway. Previously mentioned Western Gas Partners has gathering systems and processing plants expected to be in service by 2014. However, the process of acquiring permits and building pipelines can take months, if not years. To fill more immediate needs, Plains All American Pipeline is building a rail facility that will receive crude oil via truck and pipeline and load both unit and manifest trains at a rate of up to 68,000 bbl. per day.

Over the past year, all MLPs mentioned here have outperformed the Standard & Poor's 500 index, and most have outperformed the Alerian MLP Infrastructure Index (AMZI). On a trailing 12-month basis, the S&P 500 rose 12.2%, and the AMZI rose 19.5%.

Over the same period, DPC rose 16%, ONEOK 27.6%, Western Gas 49.3%, Plains All American 49.7% and Rose Rock is up 60.5% since its initial public offering last December.

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