The Niobrara shale can be found in portions of the Denver-Julesburg basin, or DJ basin, in northeastern Colorado and southwestern Nebraska, the North Park basin in northeastern Colorado, the Sand Wash basin in northwestern Colorado and the very southern portion of the Powder River basin in southeastern Wyoming. The Niobrara shale play is primarily a liquids play with similarly available, hydrocarbon-rich gas quantities contributing to the overall liquids production profile and economic potential.

Early Niobrara shale development began near the conventional Wattenberg crude oil and natural gas developments in northeastern Colorado. Development also continues in the Codell sandstone in the region, including some dual completions with the Niobrara.

With a goal to define the shale formation's core areas and to optimize capital expended, development has slowly migrated outward from the Wattenberg area as operators scope the overall play's collective potential. With federal and Wyoming state lease sales in Goshen, Laramie and Platt counties capturing all-time high revenues initial scoping and development activity in those counties has also begun.

Wyoming leasing

These southeastern Wyoming counties had historically missed much of the past Rockies regional oil and gas development, so potential Niobrara activity there has divided residents into either excited-or-concerned categories.

Anadarko Petroleum Corp. is one of the largest regional upstream developers, viewing the Wattenberg area as the nucleus of its efforts in the play. Other operators are Noble Energy Inc., Encana Corp., Chesapeake Energy Corp., CNOOC Ltd. (via a joint venture with Chesapeake Energy), Cirque Resources LP, EOG Resources Inc., Quicksilver Resources Inc., Marubeni Corp. (in a joint venture with Marathon Oil Corp.), Marathon Oil Corp., QEP Resources Inc. and Devon Energy Corp.

Other regional players include Bill Barrett Corp., Continental Resources Inc., Fidelity Exploration & Production Co., Petro-Canada, Petroleum Development Corp., Rex Energy Corp., Samson Oil & Gas Ltd., SM Energy Co., Voyageur Oil & Gas Corp. and Whiting Petroleum Corp.

Some of these operators are dividing their overall western region development efforts and capital among Niobrara, Bakken and other western region oil-liquids plays.

Located primarily east and north of the Front Range of the Rockies, midstream infrastructure development supporting the Niobrara play has a definite advantage when compared to other Rockies plays due to less distance and easier terrain. Portions of the developing Niobrara play are blessed with access to existing midstream infrastructure, which has supported prior conventional resource development.

In these areas, modifications and enhancements are under way to accommodate the growing Niobrara rich gas output.

The Wattenberg field in Weld County, Colorado, is pivotal to the developing Niobrara region and is somewhat the epicenter for midstream activity. Though slightly dated, comments from the Colorado Department of Public Health and Environment in a 2010 regulatory permit proceeding said, "there are approximately 24,000 wells scattered over 2,000 square miles in the Wattenberg field that are owned and operated by numerous oil and gas companies."

There, existing regional gas gathering systems integrate with numerous gas processing plants. Many of these systems are being enhanced to accommodate new area activity. Resultant natural gas liquids (NGLs) from the area are exported via NGL pipelines or are trucked to local markets in the region.

Major midstream parties operating facilities in the Wattenberg area include Anadarko via its Anadarko Midstream unit and its affiliate Western Gas Partners LP, DCP Midstream LLC and ONEOK Partners LP.

With primary focus on the liquids side, operators seek processing arrangements to capture NGLs from gas produced and must still accommodate any plant residue-dry natural gas that they produce. The latter, in today's price environment, is essentially a by-product of those liquids operations, and its netback price is not often of principal concern.

Tribal operator

AKA Energy, owned by the Southern Ute Indian Tribe, owns and operates the Gilcrest gas processing plant in Weld County, rated at 20 million cubic feet (MMcf) per day. This facility also includes a 1,000-barrel (bbl.) per day fractionator. Gas is processed there from the AKA gathering system as well as from third-party systems in Weld County and the general area.

In 2011, Anadarko purchased BP's extensive DJ gathering system and Wattenberg gas plant, with capacity to process 195 MMcf per day of gas and create as much as 15,000 bbl. per day of liquids. The plant continues to be owned and operated by Anadarko Midstream while the Wattenberg gathering system has been dropped down to affiliate Western Gas Partners. These facilities support Anadarko's upstream gas development efforts.

Recently, Anadarko announced that it has purchased a site in Weld County near Platteville, Colorado, to locate a major gas processing facility.

The Lancaster plant, which is under construction, should start up in first-quarter 2014. Initial capacity proposed is 300 MMcf per day with capability to triple to approximately 1 billion cubic feet per day by 2016. Colorado Interstate Gas Co. proposes to build and operate the High Plains 2013 Expansion pipeline project, which would provide initial capacity of 225 MMcf per day via a lateral to this proposed plant. This pipeline—with ultimate capacity of 600 MMcf per day—will allow residue gas volumes to access Front Range markets or markets at the Cheyenne hub.

Bear Tracker Energy LLC is expanding a gas gathering system and building a 20 MMcf per day gas processing plant in Weld County. Completion is scheduled for second-quarter 2013.

DCP Midstream LLC is one of the area's larger midstream gas gathering and processing plant operators and plans to double its gas processing capacity in the DJ basin by the end of 2014. Its newest development, the 110 MMcf per day LaSalle plant, is scheduled for late-2013 implementation. Additional compression and added gathering capacity will support the LaSalle plant operations. In fact, DCP is already planning to enhance the plant's capacity after start-up to 160 MMcf per day. For its Mewbourn II plant, DCP is enhancing its capacity by 35 MMcf per day for a total capacity of 160 MMcf per day and similarly, at its Lucerne II plant, is adding compression, gathering system capacity and plant capacity to provide a total 230 MMcf per day capability by late 2014.

These efforts will provide DCP with the ability to process approximately 800 MMcf per day of DJ basin gas via nine Niobrara-area gas processing plants and achieve associated natural gas liquids production of up to 70,000 bbl. per day.

Western Gas Partners LP (WGP), a master limited partnership 42%-owned by Anadarko, acquired the Encana Oil & Gas Wattenberg area gas gathering assets in the DJ basin and Encana's Ft. Lupton gas plant with a 105 MMcf per day capacity to integrate with its current operations in the Rockies region. In addition, Western Gas has acquired certain other APC-owned DJ basin area gathering and processing assets that have been dropped-down into the WGP business structure. These latter facilities include the 100 MMcf per day Platte Valley gas processing plant.

Utility connections

Quantities of dry natural gas associated with Niobrara crude and liquids production are generally being connected—post processing—to nearby pipelines owned either by the Denver-area Front Range gas utilities or to some of the nearby regional exit pipelines.

Public Service Co. of Colorado and Colorado Interstate are uniquely positioned in the DJ basin portion of the Niobrara and are often the dry gas pipeline connections of choice. With many of the regional gas transmission pipelines exiting the Cheyenne hub fully-contracted—but generally operating at less than full capacity—gas may be routed to the Cheyenne hub for downstream marketing.

In support of increasing NGL outputs, in 2010 DCP purchased the Wattenberg NGL pipeline from Buckeye Partners LP. This helped to provide interim additional NGL export capability from several of DCP's area plants. With additional NGL export needs, DCP has elected to participate in a joint venture with Anadarko and Enterprise Products Partners LP to build the Front Range NGL Pipeline, a 435-mile pipeline that will connect to various area plants and route processed NGLs to connect with the similarly developing Texas Express NGL Pipeline near Skellytown, Texas.

With initial capacity of 150,000 bbl. per day, Front Range NGLs will thus be able to route into downstream NGL pipelines to access Midcontinent fractionation facilities or it can be routed to fractionation facilities at the NGL hub in Mont Belvieu, Texas, via the completed Texas Express Pipeline. Estimated completion timelines for both projects are mid-2013.

The existing Overland Pass NGL Pipeline operated by ONEOK provides an extensive NGL gathering capability from several basins in the Rockies. The Overland Pass system routes NGLs to downstream fractionation facilities and to the Conway, Kansas, NGL hub. A current DJ basin lateral with capacity for 55,000 bbl. per day connects numerous plant NGL outputs to such.

The Overland Pass pipeline is currently at contractual limits. NGLs from the Bakken region are also planned to be received into and integrated with those from currently contracted Rockies locations, thus the Overland Pass system will be expanded downstream to accommodate these incremental NGL quantities.

Trucking needs

Short-haul gathering and trucking of the crude oil and condensate produced in the DJ basin continues to be the norm for much of the upstream crude gathering in the region. However, area producers Anadarko and Noble are currently implementing crude gathering capabilities to route their increasing volumes to Platteville to access downstream storage and pipeline facilities located there.

Anadarko's facilities have been built and placed in service by Western Gas Resources' affiliate Kerr-McGee Gathering and will deliver its increasing area crude volumes to Platteville. Noble will contract with Wattenberg Holding LLC for capacity on a proposed Wattenberg Oil Trunkline, providing a crude gathering capability and storage capability at Platteville of 200,000 bbl. This 37.5-mile, 12-inch crude gathering pipeline connecting truck and pipeline facilities at Briggsdale, Colorado, to Platteville is expected to be operational by fourth-quarter 2013.

For the past decade, crude has generally been routed within and from the northeastern Colorado region by truck, with a major portion of the oil trucked or pipelined to local refineries in the Rockies area. With future regional demand for refined products essentially flat and increasing volumes from Bakken sources already competing with these same Rockies crude oil markets, overall area crude supply has grown to the point where it is in excess to regional demand needs.

With additional light crude oil resources becoming available from the Niobrara development and the necessity that producers seek markets elsewhere, the White Cliffs crude oil pipeline was constructed to exit northeastern Colorado in 2009. This pipeline—owned 51% by SemCrude, 34% by Plains All-American Pipeline LP, 10% by Western Gas and 5% Noble Energy—became the first new crude pipeline from the Colorado area in over a decade. White Cliffs, whose initial capacity was 30,000 bbl. per day, has already been expanded several times to meet growing producer requirements.

Cushing connection

Rose Rock Midstream LP currently operates White Cliffs Pipeline with current capacity to provide as much as 70,000 bbl. per day of crude transportation capability from its Platteville origin directly to the major U.S. oil storage terminals and the trading hub at Cushing, Oklahoma.

Rose Rock also operates a local storage capability of 100,000 bbl. at Platteville supporting White Cliffs' daily pipeline operations, as well as operating an adjacent truck offloading and storage facility with 20,000 bbl. of storage capability. The truck facility is currently being expanded to provide for additional off-loading and storage capabilities. These facilities are expected to be in service before year-end. Downstream transportation and marketing activities for White Cliff's shippers can also be facilitated at the Cushing hub via Rose Rock's 4-million bbl. crude storage or via similar capabilities of other Cushing operators.

A recently announced open season seeks interest from "priority service shippers," whose participation and commitment would provide for White Cliffs to essentially double the capacity of its existing system, to transport an additional 80,000 bbl. per day of regional crude to Cushing. If the project receives adequate and timely commitments to go forward, facilities could be in-place as early as second-quarter 2014.

Meanwhile, discussions continue with respect to several other crude pipelines for the Niobrara region. The first would be a conversion of the Pony Express gas pipeline back to its original crude oil service. Recently acquired from Kinder Morgan by Tallgrass Energy Partners LP, the converted facility would be able to provide over 110,000 bbl. per day of added crude export capacity. Negotiations continue, with possible implementation as early as third-quarter 2014.

The second potential pipeline would be ONEOK's proposed 200,000 bbl. per day Bakken Crude Express pipeline. Paralleling the Bakken NGL Pipeline and routing into the southeastern Wyoming and northeastern Colorado area, Niobrara-area crude could also be gathered into this proposed pipeline system and routed to its Cushing destination.

Negotiations for capacity commitments on this system continue in both supply regions with a 2015 timeline being discussed.

The third is a recent offering by NuStar Logistics LP to provide crude gathering service in the Platteville and Watkins, Colorado, areas and crude transportation service via a converted, and reversed, 10-inch pipeline. NuStar currently operates it from Valero Energy's McKee, Texas, refinery to the Denver area. This new crude pipeline would connect to NuStar's existing 14-inch crude oil pipeline from McKee to Wichita Falls, Texas, which would also be reversed. Then at Wichita Falls, access is available to other pipelines, which would provide access to downstream refining markets and the Cushing hub. Binding responses from shippers via an open season are being solicited, with a requested response date in November.

Rail options

Similar to development activities in the Bakken, crude-by-rail is an important option because of its timing and its long-term market flexibility. Transportation by rail provides for market diversity not generally available via traditional pipeline routing.

The Broe Group has announced that Musket Corp. will expand its crude-by-rail export capabilities at Windsor, Colorado, in Weld County. The expanded facility will be unit-train capable and will have 48,000 bbl. on-site storage capability. Great Western Railway will provide interconnection to both the BNSF and the Union Pacific railroads. No specific timeline has been indicated.

Texas-based U.S. Development Group LLC has opened its new crude terminal in Carr, Colorado, in northern Weld County. The Niobrara Crude Terminal will ship crude oil via the Union Pacific to Gulf Coast refineries and has the capacity to support uploading from trucks of up to 35,000 bbl. per day.

Plains All-American Pipeline LP has announced that it is constructing rail facilities near Tampa, Colorado, that would allow for loading of manifest and unit-train cargos of quantities up to 68,000 bbl. per day. Crude would be received into the Tampa facility by truck or pipeline. Facilities are expected to be in-service by third-quarter 2013. BNSF Railway will provide the downstream rail transportation component.

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