The news was startling: Oklahoma City-based Chesapeake Energy made another of its blockbuster shale deals, this time with national Chinese oil company CNOOC Ltd. Even more surprising than the entry of a major foreign firm into the Niobrara was the price--Chesapeake sold a third of its 800,000-acre leasehold for $1.27 billion.

The leases are in the Denver-Julesburg (DJ) and Powder River basins of Colorado and Wyoming. The deal calls for CNOOC to pay $570 million in cash and $697 million in drilling carries. On an undiscounted basis, that values the lands at $4,750 per acre, significantly higher than the market had expected.

Clearly, the Niobrara is breaking out as a major unconventional-resource play.

And yet, the volumes of oil and gas flowing from new horizontal Niobrara wells are still small.

That should change in short order, given the more than 100 wells that are currently in progress. Results should soon begin pouring out from across the wide breadth of the Niobrara. And, an additional 400 staked locations indicates the seriousness of industry effort in this exciting oil-prone shale reservoir.

Leading The Parade

Houston-based EOG Resources launched the modern Niobrara play on to the national scene with completion of its famous #2-01H Jake in 11n-63w in Weld County, Colorado, in the third quarter of 2009. The discovery opened Hereford Field, the first major new Niobrara discovery in this latest evolution of a long-producing formation.

The Jake was the first Niobrara well drilled with state-of-the-art multiple fracture stimulations along the length of a lateral. Its IP was 1,558 barrels of oil per day, and it made 50,000 barrels of oil during its first three months on production. The company choked back the well, and from October 2009 through August 2010 it produced 78,599 barrels of oil, 47.3 million cubic feet of gas and 21,201 barrels of water. August 2010 production was 108 barrels of oil, 87,000 cubic feet of gas and 20 barrels of water per day, according to IHS Inc.

Today, EOG has 320,000 acres, mainly in the Denver-Julesburg Basin. It is running three rigs.

EOG has drilled nearly 50 wells (currently in stages from spud through completion) and staked another 100 horizontal Niobrara locations, according to IHS records. Its area of concentration is Weld County, where about 80% of its drilling has occurred to date.

The operator reported IPs of 730 barrels of oil per day from it #8-31H Elmer (12n-62w) and 1,100 barrels per day from the #10-16H Red Poll (11n-63w), both in Weld County, in a December 2010 presentation. It recently tested two Critter Creek wells east of its Jake landmark well. On managed restricted rates, the #5-10H made 690 barrels of oil per day, and the #9-15H made 748 barrels per day. Both are in 11n-63w.

Silo Field And The Northern DJ

The Jake success ignited interest in the Niobrara play, and attention quickly spread north into Wyoming's Laramie County, and particularly the area around historic Niobrara production in Silo Field.

Enthusiasm surged in the Silo area after Denver-based SM Energy produced 13,000 barrels of oil while drilling its #1-19H Atlas in early 2010. SM drilled the well in 15n-64w to about 12,000 feet, including a horizontal lateral of about 4,000 feet, and completed it with a multi-stage frac treatment. The operator reported an IP of 1,075 barrels of oil equivalent per day; by the end of November 2010, the Atlas well was making approximately 350 barrels of oil per day.

The northern DJ Basin, in Wyoming's Laramie, Platte and Goshen counties, has been a locus of Niobrara activity ever since.

At the end of 2010, SM was working on completion on its #1-24H Polaris, also in 15n-65w, and planned more drilling during 2011. It holds 25,000 net acres in the play south of Silo Field. SM reported that it has set aside $25 million of its 2011 drilling budget for Niobrara and other oil plays.

A company with a strong interest in northern DJ is Houston-based Anadarko Petroleum Corp. The operator has some 500,000 acres it considers prospective for the Niobrara. Its holdings stem from two acquisitions: In 2000, Anadarko acquired Union Pacific Resources Corp. (the company that initially developed Silo with early-era horizontal wells) and its enviable land-grant acreage. In 2006, Anadarko bought Kerr-McGee Corp., one of the largest operators in Wattenberg Field.

In its third-quarter 2010 operations report, Anadarko said it had drilled four vertical Niobrara test wells and was drilling its first operated horizontal Niobrara well. As of January 2011, the operator had drilled three horizontal wildcats in Laramie County in 13n-64w and 13n-65w. It plans to increase its rig count in the play this year. IHS Inc. reports Anadarko has three dozen horizontal Niobrara sites, ranging from drilled wells to staked locations, in Laramie County and Weld County, Colorado.

A private operator employed in the Silo Field area is Cirque Resources. Denver-based Cirque enjoyed first-mover advantage as it assembled 481,000 net acres in two areas with Niobrara potential, including 306,000 acres in the northern DJ, and it assembled much of that land early in the play before prices soared. Cirque brought Noble Energy into its northern DJ block as a 55% partner. Operations are split between the two companies, and Cirque has a number of locations staked in townships 16n and 17n, 64w through 66w. Cirque hasn't disclosed the location of the 175,000 acres it holds outside its Noble Energy venture.

Overall, in 2011, Cirque plans to drill 10 to 12 exploratory tests in seven different oil resource projects in addition to participating in 10 to 12 Niobrara wells in the DJ.

Meanwhile, private operator Simray Production Co. of Richardson, Texas, completed its #1H State, a horizontal Niobrara discovery in 15n-65w, Laramie County, with an IP of 831 barrels of oil and 205,000 cubic feet of gas per day from a 5,298-foot horizontal lateral treated with 20 frac stages. Simray drilled another horizontal Niobrara well in 14n-63w, but that was apparently not a commercial success.

A Marcellus operator that came West to test the Niobrara and settled in the northern DJ is State College, Pennsylvania-based Rex Energy Corp. The company moved into the Niobrara play in the second half of 2010 with the acquisition of 26,900 gross (18,700 net) acres of prospective land for $18.7 million. It began a drilling campaign near Silo Field shortly after the acquisition.

By December 2010, Rex had assembled approximately 56,000 gross, 40,000 net, acres in the play and had one rig running. It has been busy in 15n-62w, 15n-64w, 16n-65w and 16n-66w. Rex completed its #41-22H Silo State with a 13-stage slickwater frac in late September 2010 in southern Silo Field. The tubing string parted on the well during flowback and had to be repaired. The company expects to put the well on artificial lift, it said in its third-quarter report. The #1H Herrington Farms, with a 4,300-foot lateral, was the second in the program. That well is 12 miles east of the Silo State well and outside previous Niobrara production. It started oil sales during drilling operations. In the Silo Field area, Rex has reported the #1H Zimmerman was drilled, and it has started rathole work on its #1H Wilson College and #1H Holmes Grain, according to IHS Inc. Rex anticipates that its wells will cost between $3.5 million and $4.2 million.

North of Laramie County, operators are active in Goshen and Platte counties. Chesapeake has a sizeable effort in Goshen County, where it has seven wells in various stages of work. The company purchased acreage in Goshen from Australian explorer Samson Oil & Gas Ltd. in 2010. Samson sold Chesapeake 24,166 acres, out of Samson's 40,800-net-acre position, in the Goshen Hole area. Chesapeake has also staked a couple of wells in Platte County: a remote horizontal wildcat to Niobrara about eight miles east-southeast of Chugwater in 20n-65w, and another in 22n-65w.

Likewise, EOG has been investigating the formation's potential in the northern DJ. In 2010, EOG drilled three exploratory wells in Goshen County, the #05-34H Silvertip, #06-34M Silvertip and #16-35H Panda, but it didn't release details. In Platte County, EOG scheduled five horizontal Niobrara wildcats on its Black Bear, Klondike and Bruin leases, according to IHS Inc., but no activity has been reported on the leases, which lie generally west and southwest of Chesapeake's position in southwestern Goshen County.

Other operators working in the northern DJ include public companies QEP Resources Inc. and Bill Barrett Corp., and private firms Texas American Resources Co., Duncan Oil, Jonah Gas Co., RKI Exploration & Production and MBI Oil & Gas.

Denver-based QEP has drilled its first Niobrara test in Laramie County, its #16-4H Borie, in 13n-68w. The company holds 84,000 net acres in the liquids-rich play, primarily in the Wyoming portion of the DJ. Denver explorer Bill Barrett Corp. has some 40 locations staked for horizontal Niobrara wells in Laramie and Platte counties. It has not started to drill, according to IHS Inc.

Stay tuned for Part 2 of the series, which will focus on Niobrara activity in Weld County.

Contact the authors, Peggy Williams and Don Lyle, at pwilliams@hartenergy.com and dlyle@hartenergy.com.

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