Colorado Operators Reaping Rewards From Sticking by ‘Predictable’ DJ-Niobrara

Abstract

Colorado oil production is surging to record levels, outpacing the other major producing US states in year-over-year gains on the backs of the steady-and-predictable Denver-Julesburg (DJ) Basin and overlapping Niobrara Shale. As overall US oil output continues to surge, attention has been drawn to the Permian Basin and SCOOP and STACK plays. Operators have flocked to West Texas, southeastern New Mexico, and central Oklahoma to stake claims to land they believe will usher them into a new, leaner era for the industry. The expansive Permian alone, which covers more than 75,000 sq miles, has accounted for the bulk of US oil production increases and mergers and acquisitions over the last couple of years. Although they are intertwined and together encompass parts of Colorado border states Wyoming, Nebraska, and Kansas, the DJ and Niobrara offer a fraction of the acreage and prospective resources of the Permian. But the existing acreage quality is high. Relatively few companies have large positions in the region, with leadership of many of those firms having earned their stripes with nearby competitors. Mike Eberhard, chief operating officer of SRC Energy, previously known as Synergy Resources and one of the region’s largest pure-play firms, explained that the DJ is attractive because “it has a very good rate of return” due mainly to low well and takeaway costs, which makes it competitive with the other major basins. He previously served as completions manager for Anadarko Petroleum’s DJ Basin program. “We have a very good infrastructure” in the region, he said. “We don’t have a lot of [midstream companies] going over the top of each other, trying to get into the next location. Most of the acreage out here is dedicated for midstream. Everybody kind of knows who has what, and we do development around that.” Meanwhile, “the service sector has been here since the ‘60s.” Denver also serves as a stable source of skilled workers, “so you’re not putting up man camps” like in the Bakken and Permian where labor costs and turnover can be high. “And we don’t make a lot of water with the wells. We don’t have a lot of disposal issues,” which are common in areas such as the Permian.