Southwestern Energy Buys Into Sand Wash Basin (Niobrara)
Just a quick update note after Southwestern (NYSE:SWN) announced they had acquired 312,000 net acres in Sand Wash Basin of Northwest Colorado for $180 mm from Quicksilver Resources (NYSE:KWK) and Shell (NYSE:RDS.A) (NYSE:RDS.B) who had a JV together in the Basin. It's a big area using Quicksilver's map, covering some 35 miles east to west and 15 miles north to south (in the northwestern corner of the state in Moffat and Routt Counties) which satisfies Southwestern's liking for scalable plays. Note that Quicksilver only entered the play at the end of 2012 which speaks to their balance sheet in our view and not the Basin itself.
The play here is oily unconventional Niobrara and there is Mancos shale potential above it here as well. CBM potential exists, too, but that's not going to be the play now if ever. So far development has been primarily via verticals and there is a history of 80 older wells (circa 1960 to 1980) with type curves that fit a nearly 200 MBOE EUR. A more modern vertical drilled by Quicksilver in 2012 IP'd at an impressive 400 BOEpd (70% oil) and was restricted by surface equipment at that time. Other recent vertical wells have IP'd close to 100 BOEpd with shallow declines. There is little chance Southwestern is not thinking of horizontal potential or horizontal in some areas and vertical in others potential for the play.
Quick Nutshell: It's somewhat rare for Southwestern to go after acreage packages in the public markets. The company has said it was working on two to three new venture areas outside of the Brown Dense so a new area is not an unexpected move and given their leverage to natural gas prices and the elevated strip this past winter has caused we're pleased to see cash flow heading to another potentially oily play where they can transfer their horizontal drilling skill set. That skill set was honed in the Fayetteville Shale, and it's a skill set that 9 years into that play is still yielding new record sized wells as well as over in their newer Marcellus ventures. We're glad to see them get another large play that's delineated at least for the presence of oil across a wide swath of a big area and will be looking to learn more about their plan for delineation here in coming weeks. No change to estimates as the acquisition should have brought with it little in the way of current production or reserves and we'd expect 2014 to be used as a year of learning here with perhaps a broader program in 2015.
Disclosure: I am long SWN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.