Getting Levered to the Niobrara: Which Stocks to Buy

by: Michael Filloon

The Niobrara shale has been the topic of much interest recently. Some of the biggest names in oil and gas, created a stir based on what an acre of land was worth here. Samson Oil and Gas (NYSEMKT:SSN) sold a significant portion to Chesapeake (NYSE:CHK) which then turned around and made a deal with CNOOC (NYSE:CEO), which I cover in more depth here. Not only did Samson sell the land but in return also will receive a royalty payment. Since then we are seeing Samson's stock go through the roof, and I have a feeling this is just the beginning. This is why Terry Barr President of Samson has been forthright about how well Samson with do this year. These optimistic statements are backed by seismic of the area, that we are sitting on the edge of our seats to hear. The farm in of Halliburton (NYSE:HAL) also backs this area.

Chesapeake is a very large company, and I would normally not include them in this write up as I would be unsure how much its position would effect its bottom line. Due to the Samson move it is difficult to leave them out. Currently Chesapeake has 800000 gross acres and 535,000 net acres. Chesapeake estimates having 3.4 bboe of unrisked unproved resources. This makes it the second largest player in the area. One of Chesapeake's wells in the Niobrara is producing 705 boe/d (Spillman Draw Unit State 16-1H). Chesapeake still retains 66.7% of its Powder River and D-J Basin holdings (CNOOC holds the other 33.3%).

Noble Energy (NYSE:NBL) has over 830,000 net acres in the D-J Basin. Noble seems confident this area will be a money maker for some time. With respect to rig count, it has 6 vertical and 3 horizontal. Sometime this year they will increase to 5 horizontal rigs. Noble is currently doing a 3-D seismic of the area to see how big its opportunities are. Net unrisked resource potential of 1.7 bboe. Its Wattenburg field is Noble's largest onshore United States field. Currently Wattenburg field is 400000 acres. More then 50% of production from here is liquids. Lease operating costs are just $3.50/barrel. This year the horizontal rig program here will increase to 3 or 4 rigs depending on results. Initial results show horizontal drilling increasing production substantially. Nobel has 430000 acres in the D-J Basin. This entry only cost Nobel $480/acre. It is currently doing a 3-D seismic of 1000 square miles in the area. One rig will be working this section until they have more info on resource potential and location. Nobel has stated they will slowly figure completion techniques to make sure they are getting the largest resource possible from the area.

EOG Resources (NYSE:EOG) is the largest oil producer in the Niobrara with approximately 300000 net acres in the play. I recently covered the prospects of this stock here. EOG describes the Niobrara as a highly fractured oil shale play. This area has recently been converted from a fractured to a matrix play, which means higher reserve recovery. EOG currently has 3 rigs running here. This company is going to focus on 80000 acres of the 300000 for now. 40 wells are planned here in 2011. The D-J Basin area is producing 94% liquids. Four well tests last year had these results:

  • Jake 2-01H 1,558 bopd
  • Elmer 8-31H 730 bopd
  • Red Pole 10-16H 1,100 bopd
  • Critter Creek 9-15H 748 bopd

More recent well tests in this area concluded:

  • Critter Creek 13-17H 731 bopd
  • Elsie 7-34H 820 bopd

Quicksilver Resources (NYSE:KWK) has added approximately 145,000 gross acres (77,000 net) to its current position in the Greater Green River Basin of northern Colorado and southern Wyoming. This brings its total approximately 140,000 net acres in what this company believes to be an oil and gas basin. Quicksilver will drill its first wells here in the upcoming summer.

Bill Barrett Corp. (NYSE:BBG) is currently exploring the McRae Gap Niobrara Oil Prospect. This legacy Wind River land position has 101,500 gross or 90,800 net acres in the Niobrara fairway. Two wells will be drilled her. Wells will range from 4,000 to 14,000 feet. This company has already drilled an exploration well and completion should happen this summer. Oil and gas have shown consistently in this area. This company is mainly in natural gas, so be wary about an investment here, even though they are starting to go after oil.

PDC Energy (PETD) currently has 70,500 acres in Wattenburg Field of the D-J Basin. For more information on this company go here. There are 1,410 gross operated wells. Undeveloped locations are 1,533. PDC is currently working this Niobrara location. In 2010, PDC had 185 new drills here. This year they are looking for 90 new vertical wells and 140 recompletion and refracs. Like others in this area, they are beginning to convert from vertical wells to horizontal to increase output. 14 new horizontal wells are to be done this year. Horizontals have 70% more capital efficiency, then verticals. This location has a possible 125 horizontal locations. 20 MMBoe in place per section. To show the economic difference with respect to vertical and horizontal wells I have some figures:

Well Cost
Vertical $600,000
Refrac $240,000
Horizontal $3.5 million

IP Boep/d

Gross EUR (MBoe)


Continental (NYSE:CLR) currently has 71,712 net acres in the NIobrara D-J Basin. Two-thirds in Wyoming, and one-third in Colorado. 224 net locations are possible here. 52 MMBoe potential net reserves at this Niobrara location. It seems Continental is feeling this area out as they are awaiting completion on its first 1,280 acre spaced well. More on this company here.

Whiting Petroleum (NYSE:WLL) has a Redtail Niobrara project. This holding is 102,424 gross or 73,115 net acres. It is in the northeastern area of the D-J Basin. Whiting believes 320 acre spacing is possible here, and if so it will have 220 operated wells and 131 nonoperated well. Horizontals will cost $4 to $5 million. This is an interesting area as Whiting had 1 rig running last year and have increased to 6 rigs this year. $35 million will be spent on the Niobrara in 2011. Whiting obtained this acreage for $468 per acre. They are continuing to acquire land. IP rates in this area are averaging 600 to 1600 boep/d. To read about this company's other drill sites go here.

Rexx Energy (NASDAQ:REXX) has 65,400 gross or 45,000 net acres located in the D-J Basin of the Niobrara. 100% of these acres are in the oil window of the Niobrara and have total nonproven potential of 17.4 to 30.5 MMBoe (REXX estimate if full development program is run). 3 wells are drilled and frac'd. Source rock in this formation is over 300 feet thick. It has a high organic content. Well costs are expected to be $3.5 to $4.2 million. Rexx estimates with a full program run at this location EUR could be from 200 to 350 MMBoe. Rexx expects these wells to have an IP of 400 bbls/d. Rexx has had very encouraging results from its position here.

Carrizo Oil and Gas (NASDAQ:CRZO) has 61,000 net acres in the Niobrara. They expect this area to add substantial oil and condensate in the near term. In the fourth quarter of last year it drilled three and frac'd one. A 1 rig plan is in place for 2011. Of this Niobrara acreage 50% is drillable. Carrizo plans on 320 acre spacing which would equate to 95 wells. EUR per well is estimated at 300 MBOE. Carrizo is still looking to add to its position. Nobel did estimate that its Niobrara wells could have up to 500 Mboe using horizontal drilling. EOG's IPs have been between 500 to 1500 Boep/d. Carrizo's first well here had an IP of 590 Bop/d on a 2050 foot horizontal. They have two other wells drilled and waiting on frac. To optimize they are estimated having well costs on average of $3.5 million. Carrizo plans to do 5,000 foot laterals with 15 frac stages. When correlating price to an average well, it is surprising the difference from $75 per barrel to $90 per barrel. Using $75 the IRR is 80%, but if $90 is used that number becomes 150%. Using $70 undiscounted payback is 1.4 years. Check here for more on other shale plays this company has here.

Voyager Oil and Gas (VOG) is a very interesting company. Not only does it have 48,000 net acres in the Niobrara, it also has 24000 net acres in the Bakken. Voyager currently has a JV with Slawson. It recently completed 3 test wells in the Niobrara. Voyager currently has 22 drilling sites delineated as high quality areas. The company CEO recently stated it will be adding acreage in the core Niobrara area. Watch this stock closely, and it seems very interesting as the market beats this stock up over world economic worries.

Last but not least is Samson Oil and Gas. This company has been setting the world on fire. This stock is up 211% over the past three months and 550% over the last year. Samson has 14000 net acres in the Niobrara. It completed the 3-D seismic and established a JV with Halliburton. Additional catalysts are the current wells being drilled by Chesapeake and Devon Energy (NYSE:DVN) is acquiring a 3-D seismic.

The Niobrara is a very interesting location as just recently we found out this location would have half the amount of recoverable oil when compared to the Bakken. I am unsure if this is true, but even if that estimate is only half right, there is still a lot of oil to be had.

Disclosure: I am long SSN. For PDC Numbers the assumptions are 80% NRI lease. November 2010 strip price. Codell/Niobrara GOR equals 5,900 SCF/BBL. Niobrara GOR equals 2,900 SCF/BBL.This article is meant to be used as a guide to find stocks associated with the Niobrara. It is not a recommendation to buy, as before anyone invests, they need to study the stock in question.