Energy companies map Niobrara formation for its oil potential

By Mark JaffeThe Denver Post

POSTED: 04/10/2011 01:00:00 AM MDT7 COMMENTS

Three "vibrator" trucks from Houston-based Geokinetics Inc. carry out a seismicsurveyof the vast Niobrara formation for oil deposits near Grover in northern Colorado.(RJ Sangosti, The Denver Post )

Bob Smith of Geokinetics holds a cord of six small geophones that the company uses in seismicsurveysof the Niobrara formation.( RJ Sangosti, The Denver Post )

GROVER A curious convoy of three white trucks perched on 5-foot tires rolled over a windswept farm field. When the trucks stopped and dropped large metal plates from their under- carriages that fiercely shook the ground, they looked even odder.

The "vibrator" trucks are part of a small army deployed by Houston-based Geokinetics Inc. to map the potentially oil-rich Niobrara formation more than 6,000 feet below the Colorado plains.

About 50 oil and gas companies are in the Niobrara, with most of the activity straddling the Colorado-Wyoming border. The top companies say they plan to drill more than 150 exploratory wells in 2011.

In the past year, there have been about $2 billion in deals for land and infrastructure in the Niobrara, according to a study by Tudor, Pickering, Holt & Co., a Houston-based energy industryinvestmentbank.

Still, no one knows the real value of the formation, which stretches across several geological basins from New Mexico through Colorado to Wyoming and as far west as Utah.

"The Niobrara is big and complex," said Dan Kelly, a vice president at Noble Energy, one of the companies probing the formation. "The answer isn't going to come in a day."

And so, the Geokinetics team slowly and steadily moves across 1,000 square miles of Colorado, laying down cables and sensors called geophones and having the vibrators shake the earth.

At the same time, companies are scanning cores of Niobrara rock with electron microscopes and X-rays.

"It all gets back to the geology," said Vince Matthews, director of the Colorado Geological Survey. "The Niobrara has really big potential, but we've seen these finds hyped before."

"Jake" leads the wayThe oil rush began in 2009 with "Jake," a well drilled near the Wyoming border by Houston-based EOG Resources.

While the average onshore U.S. oil well yields about 300 barrels a month, Jake gave up 1,558 barrels a day, according to the company.

Noble's Gemini well, near the center of Weld County, yielded 1,100 barrels a day for the first 60 days in 2010, a company presentation said.

Of the roughly 30 exploratory wells drilled in a 200-mile stretch of the formation in Colorado and Wyoming, about half yielded 800 barrels a day or less, according to the Tudor Pickering study.

The Niobrara, created 90 million years ago when an inland sea covered most of the Western states, is a layer cake of shale, limestone and marl, about 200 to 400 feet thick. The oil is produced in the shale and collected in the limestone layers, which are 20 feet to 30 feet thick.

The "game changer" has been the combination of two well-known technologies horizontal drilling and hydraulic fracturing said Peter Dea, chief executive of Cirque Energy, a Denver-based independent driller in the Niobrara.

By drilling through the limestone horizontally and fracturing the rock by pumping a solution of water and chemicals into the strata under pressure, the well can capture larger volumes of oil.

The hydrofracturing process has become controversial as concerns have been raised over whether it can pose a pollution risk to groundwater. The Colorado Oil and Gas Conservation Commission is having an outside audit done to evaluate the strength of its fracking regulations.

Economic questionsOil companies working the Niobrara are playing a hide-and-seek game over a vast area of the West.

"What you are trying to do is find out if the resource is economic," said Joel Fox, an adviser for EnCana Oil & Gas USA's new ventures group, which is drilling in the Niobrara formation in Garfield County.

The economic answer is in the rock, Fox said. Is it porous enough to hold oil? Is it permeable enough to give up the oil when it is tapped?

To answer those questions, companies are sending cores of Niobrara rock to their labs to be scanned by an electron microscope to get a clear idea of the structure.

The bedeviling question remains whether there is enough oil to make it worth drilling a $3 million to $5 million horizontal well more than triple the cost of a standard vertical well.

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Click on image to enlarge (The Denver Post)

The Niobrara is often compared to the rich Bakken formation in North Dakota, where the total organic compounds in the rock range from 8 percent to 10 percent.

In the Niobrara the range is about 1 percent to 8 percent.

"You really need (total organic compounds) of at least 4 percent to be profitable," Matthews said.

That has left oil companies trying to amass large holdings and figuring out where in the Niobrara's 8,400 square miles to drill.

Ground-shaking effortGeokinetics has been hired by a consortium of oil companies to come up with a map for the hunt.

Since January, the company's team of about 60 men has systematically moved across northern Weld County laying miles and miles of cables plugged into one another linked to hundreds of geophones like a massive string of Christmas lights.

The grid is broken only by buffer areas around homes, wells, ponds or other structures.

In the Pawnee National Grasslands, at the edge of thesurveyarea, workers can walk in and plant geophones but the vibrators must stay out.

Methodically, the vibrators, on their low-pressure tires designed to limit damage to fields, move through the grid. They stop at spots fixed by satellite geo-positioning and drop their plates and shake the ground, or "shoot the patch."

It is a shake that runs right up the legs of someone standing 30 feet away.

More important, those vibrations penetrate as deep as 20,000 feet into the ground, and the soundwave ricochets are picked up by the geophones.

The Niobrara occupies a zone between 6,000 and 10,000 feet deep, and the aim is to collect data from 153,000 points to map that strata.

All that will be used by Geokinetics, and its partner Geophysical Pursuit, to create a 3-D seismic map for their clients.

That map will help drillers sink a well a mile and a half deep and then stay within the horizontal limestone band for 4,000 feet or more.

Geokinetics estimates that on average it costs less than $100 an acre to conduct asurveylike the one in the Niobrara, which covers about 643,000 acres.

"This is a very large shoot," said McGee Schofield, Geokinetics' senior observer on the job.

Schofield sat before an array of computer monitors in the command trailer, tracking everything from the location of vibrators, to the size and depth of the shakes.

"This is going to take a while," he said.

China buys piece of actionThat has not deterred oil companies: 30 are working the Niobrara formation in the Denver-Julesburg Basin northeast of Denver, four are in the Western Slope's Piceance Basin, and 12 are in Wyoming, according to the Tudor Pickering study.

Since December, there have been 14 deals acquiring acreage and reserves. The eight transactions with reported prices were worth more than $1.9 billion.

The biggest was a $1.3 billion purchase by Cnooc Ltd., China's largest offshore-oil producer, of a one-third interest in Oklahoma City-based Chesapeake Energy's 800,000-acre Niobrara position.

"We believe the deal will give us the potential to develop the field more quickly," said John Dill, Chesapeake's director of corporate development for the Rockies.

Chesapeake estimates there could be the equivalent of as much as 5 billion barrels of oil in its holding.

For Cnooc, the lure is gaining expertise into horizontal drilling and fracking technology, said Ward Polzin, a managing director at Tudor Pickering, which represented the Chinese company in the deal.

"The U.S. is the leader in these technologies," Polzin said.

On Tuesday, Marathon Oil announced an agreement to sell a 30 percent interest in its 180,000-acre Colorado Niobrara holding to Japan's Marubeni Corp. for $270 million.

The economic impact for Colorado could be big, said Peter Stark, vice president for industry relations at consulting firm IHS.

"If the play can produce 200,000 barrels a day, that could be 25,000 jobs," Stark said.

Anadarko Petroleum, the largest operator in the Denver-Julesburg Basin, Noble and oil-field services companies Halliburton and Schneider Energy are all building new headquarters or expanding operations in Weld County, said Bruce Biggi, county economic development manager.

The second-largest acquisition in the Denver-Julesburg was made by Noble $494 million for 340,000 acres from Suncor Energy.

Still, Noble executives remain cautious.

"We've had a lot more signs of good wells," Kelly said. "But the Niobrara is sospreadout. ... We'll have a better idea of what's out there by 2012."

Mark Jaffe: 303-954-1912 ormjaffe@denverpost.comThe Niobrara Shale Play the nextBakken?Posted onJanuary 28, 2013byClover Global SolutionsThe Niobrara shale formation extends across northeastern Colorado, northwestern Kansas, southwestern Nebraska and southeastern Wyoming. The play ranges in thickness from 275-400 feet deep, with three primary carbonate-rich benches that average 10-25 feet thick with 5-10% porosity.

Within the Niobrara, oil and natural gas are found at 3,000-14,000 feet beneath the earths surface. O&G producers tap these resources through both vertical and horizontal wells typically drilled at 7,000-8,000 feet with variable geopressures.

To date, most of the Niobraras O&G development focuses on the Denver-Julesburg Basin (DJ Basin), with hot spots in the Wattenberg field of Weld County, Colorado, and (to a much lesser degree) Wyomings Silo field. Niobrara operators face unique challenges in this formation, but remain hopeful because of new estimates on overall production expectations over the next few years.

Unique Challenges for Oil & GasNiobraras geological characteristics can impede effective, economical drilling. The formation transitions from limestone to chalk to calcareous shale to sandstone, each with differing depth and thickness. Navigating drills in the thin layers is difficult, and high clay content of the formation makes it less permeable than other areas and complicates extraction.

The variable natural fracturing occurrence that results from the geological variety also impacts successful drilling. Operators seek sections that experience high natural fracture density, which are likely more productive and easier to tap, versus reservoirs with lower fracture density that yields higher water cuts and lower productivity. Early interest has yielded select highly explored drilling areas; however operators face challenges finding suitable locations for new horizontal wells that wont interfere with existing vertical wellbores.

Water has proved an additional impediment in the Niobrara, from industry and environmental standpoints. The hydraulic fracturing process that revolutionized shale drilling requires high volumes of water. Summer 2012s severe drought and rampant wildfires in Colorado rendered water scarce and forced O&G operators to spend more on securing access to water from the Colorado River.

Output Results Thus FarThecomplexityoftheNiobrarapetroleumsystem complicates cumulativedata, but estimates show that almost 2 billion barrels of oil equivalent have been produced from the Wattenberg field alone. EOG Resources Jake 2-01h drilled its first well in 2009 in northern Colorado, producing 50,000 barrels ofcrude oilin the first 90 days and maintaining outputs of 50,000 barrels per month. Noble Energys Gemini entered Weld County in 2010 and produced 1,100 barrels per day at its peak.

After a strong start, however, output has been less than predicted. In Weld County, for example, the first half of 2012 produced 11.5 million barrels of oil and 101.4 million cubic feet of gas. This compares to 26.5 million barrels and 238.4 million cubic feet, respectively, in 2011.

Looking ForwardDespite lower outputs than expected, interest in the Niobrara play remains high. Notably, the O&G leaders in the play are independents that plan to continue or expand their drilling and E&P programs. As of August 2012, 45 rigs were active four more than in 2011. New estimates now say that the play is a third bigger than first thought, capable of producing as much as 3.6 billion barrels of oil over the next several years. An ASD Report estimates that production will pass 3 billion barrels by 2020.

The table below gives a sample of independents with a stake in the Niobrara. As you can see, future plans for the play show increased production going forward.

Although the geology of Niobrara presents challenges, operators are working around them to increase production in the area, and the forecast for this shale play is expected to increase.Clover specializes in placing professionals in the oil and gas industry. If you are an Operator seeking to augment Project Teams, contactJeff.W@clovergs.comIf you are an experienced professional looking for opportunities in the Upstream Industry (Alaska, Eagle Ford Shale Play, Bakken Formation, Deepwater Gulf of Mexico), send your resume in complete confidence toChris.S@clovergs.com