niobrara have we done enough

Apparently, Niobrara Shale is the latest hot location for shale oil (refer article below).

OILMEN BET ON NIOBRARA PLAY IN WYOMING

You wouldn't know it by looking at the landscape, but there's an oil rush happening in southeast Wyoming.

Vast expanses of Laramie, Goshen and Platte counties are some of the emptiest places in Wyoming, where cattle and farm operations are widely dispersed over wind-swept rolling plains.

A few dozen old pumpjacks scattered in alfalfa fields and newly etched subdivisions still rock intermittently in southern Laramie County. But the landscape in Goshen and Platte counties bears no evidence of oil activity. These are two of only three counties in Wyoming that do not produce any oil or natural gas.

Yet the Niobrara oil rush is in full swing here, in the form of freshly signed mineral lease contracts.

In a Goshen County records vault crowded with oil industry landmen, one of them said in a low voice, "Everything's getting leased."

The industry is spending millions to put together large lease blocks in the Niobrara formation, which is part of the prolific Denver-Julesburg Basin, or DJ basin, spanning the three-state convergence of Nebraska, Colorado and Wyoming.

Next comes three or five years of exploratory drilling, then perhaps 20 years of full-scale drilling and production -- or so the speculation goes.

"I heard it's about to explode," said Niobrara County Clerk Becky Freeman.

Betting on Niobrara

Late in 2009, EOG Resources Inc. drilled a horizontal pilot well in the Niobrara shale just south of the Wyoming-Colorado border near Cheyenne. Initial flows from EOG's "Jake" well were described by those in the industry as "a gusher." Six months later, in April, EOG reported the well had yielded 50,000 barrels during the first 90 days.

That was enough for oil companies to reach for their checkbooks.

With the success of the Bakken oilfield in North Dakota, oilmen have a validated sense of technical prowess. With about 20 years of horizontal drilling experience and new 3D seismic technology, oilmen are honing hydraulic fracturing and multiple-zone completion techniques.

Rather than taking a vertical stab at a production zone, they can slice through the zone horizontally for 3,000 or 5,000 feet, fracturing here and there to create a series of entries for oil and natural gas.

So with the price of oil buoyed at about $70 per barrel, the industry is prepared to speculate on the future of the Niobrara formation in Wyoming where almost no test results exist.

The Bureau of Land Management and state of Wyoming held separate lease sales in May. Bids for parcels in the southeast corner of the state skyrocketed, shocking industry and government officials alike.

"The normal [BLM] sale in May went crazy. Before this, you could get any parcel in Goshen County for less than $10 per acre," said Brian Farris, a partner in Utah-based Ridgeland Operating Inc.

The mineral lease feeding frenzy seemed to build mostly on speculation and just plain fierce competitiveness among those in the industry.

"It's mostly unproven, so the prices are surprising," said Dave Olds of Bold Resources.

The state sale in May brought in a record $45.6 million, prompting officials to quickly offer up the state's remaining parcels in the Niobrara for a special lease sale in July. That sale netted more than $42 million for 287 parcels, including one parcel that went for $3,200 per acre.

"If they're putting that big of a bet on the table, so to speak, I would think there's going to be some drilling," said Olds.

Adding to industry's confidence is the fact that much of southeastern Wyoming is free of federally owned, Bureau of Land Management-administered surface and minerals. It's mostly a private, or "fee," play in a state known for churning out drilling permits in a reasonable amount of time.

"[The price of] oil is strong. And then you take the situation in the Gulf, well, onshore looks a whole lot easier," said Olds. "So where are you going to go? Mmmm, how about Wyoming?"

Players take the field

One thing's for sure: The oilmen who have spent millions upon millions of dollars to get footholds in the Niobrara intend to make good on their investment.

Before May, the Wyoming Oil and Gas Conservation Commission had already received 55 horizontal well applications -- not just for the Niobrara. But also for the Frontier and other formations, meaning the industry plans to test the technology in southeast Wyoming as well as the Powder River Basin in the northeast.

In the month of June alone the state had received 32 horizontal well applications in Laramie County, nine in Goshen and four in Platte.

"I'd have to go back a long time to see any APD [application for permit to drill] approved in Laramie County," commission supervisor Tom Doll recently said at an industry forum.

About the same time EOG's Jake well sparked a buzz in the industry, Oklahoma-based Chesapeake Energy reported impressive yields from one of its Wagonhound wells near the North Platte River just west of Douglas.

Not long after its Wagonhound pilot success, Chesapeake told Wyoming regulators it would launch an intense drilling program in Wyoming, spending up to $10 million per month.

According to industry insiders, that kind of money buys about two of these highly sophisticated horizontal wells. While the new Wyoming oil play hasn't seemed to attract the big, big players like Shell and ExxonMobil, it's not something for the small mom & pops, either.

Chesapeake is the second largest natural gas producer in the nation, and is also a major player in the Haynesville, Barnett and Marcellus shale gas plays. EOG Resources is also one of the biggest independents in the United States with expertise in many of the same plays.

Several bidders at the state's special lease auction in July said they expected to get out-bid early in the day.

On June 30, Rex Energy Corp. announced it had paid $18.7 million for 26,900 lease acres in DJ basin, setting itself up close to where EOG drilled deep in the Silo field to tap the Niobrara formation.

In a media release, Rex President and CEO Benjamin W. Hulburt noted that the Niobrara play wasn't yet at the stage forecast production. But, "we believe our Niobrara position has the potential to be a very significant growth driver for the company."

Facts and faith

Although real production from the Niobrara in Wyoming is almost non-existent, geologists and engineers are crafting their plans based on geology of the parcels they have.

"What we have done so far to date is, well, we haven't drilled a well that has tested the Niobrara in our neck of woods," said Dave Ninke, vice president of exploration for Denver-based Samson Oil & Gas Limited.

However, a pilot well was recently drilled by another company near Samson's lease holdings. And as so many Niobrara oil stories go, "rumor has it that ..."

Ninke said geologists are looking for natural fractures in the formation, and hoping those fractures hold hydrocarbons. Those areas with natural fracturing will be the starting point for many companies, representing the cream of the crop, or the biggest initial flows. But it's still a given that hydraulic fracturing will be a necessity for Niobrara wells.

"I think you could expect, initially, the wells will have 10 to 20 frack stages per well, drilled on 640-acre spacing," said Ninke. "Maybe down the road, wells could go down to 320-acre spacing once we know the drainage spacing."

Yet at this point, companies that have invested millions of dollars still have much to prove about the Niobrara.

"There's a lot of buzz out there," Doll said during a recent industry forum. "I'm not going to call it a boom yet. But I think we will see that the state line is not a barrier to producing crude oil."

Just minutes before he entered the crowded state lease auction July 9 in Cheyenne, Steve Gose of Retamco Operating Inc. put it this way: "We oil men, we always believe, even without all the evidence. We have to."

End of article

Elk management however concluded in Oct 09:
"The Grieve #39A well was perforated in the Niobrara and acidised. There has been no recovery of oil, and the well will be suspended in a manner allowing continuous observation."

Based on poor management performance and decisions to date, could they have drilled incorrectly? ie. not used hydraulic fracturing/ horizontal drilling methods like everyone else is? I wouldn't be surprised...

The fact that they only drill one hole ie. #39A would mean that it was a vertical hole. Shouldn't they have drilled horizontally like everyone else in the article?!?!? What happened to all that accumulated oil and gas experience they keep talking about?

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