Business is rockin' in the Bakken. Within the next year output is expected to surpass one million barrels per day, up from almost nothing ten years ago. Such growth has been a boon for investors as evident in the share price performance of companies like Continental Resources, Inc. (NYSE:CLR), Kodiak Oil & Gas Corp (USA) (NYSE:KOG), and Oasis Petroleum Inc. (NYSE:OAS).
But the hunt is now on for the next great American shale play. And one formation in particular just might have the potential to rival the Bakken: the Colorado Niobrara.
A spotty track record Readers may be surprised to hear Colorado listed as the next big oil play for a couple of reasons. First, the Centennial State is better known for cold beers and snow-capped mountains than drilling rigs and oil production. Second, the Niobrara has been a capital sink hole.
At EOG Resources Inc (NYSE:EOG) the Niobrara is far down on the company's priority list. President and CEO William Thomas complained about 'inconsistent results' and warned other operators to expect the same problem. Remember these guys are worth listening to as they were among the first to start drilling in the now booming Bakken and the Texas Eagle Ford fields.
Ultra Petroleum Corp. (NYSE:UPL) also came up dry in the Niobrara. Drilling results ultimately revealed that the play was not commercial and the company abandoned its exploration efforts to refocus on natural gas.
But recent drilling results suggest the play might have potential after all. It turns out the Niobrara is spotty. The difference between a successful well and a dry hole all comes down to location, and the key to investment success in the play will come down to finding the operators with the best acreage.
Today a lot of smart money is starting to move into the region. Noble Energy, Inc. (NYSE:NBL) CEO Charles Davidson describes the Niobrara as a 'top-tier oil play,' and his company plans to invest $1.7 billion in the formation this year. Results have been so good management has accelerated its development program, aiming to triple production within five years.
Energy giant Anadarko Petroleum Corporation (NYSE:APC), which owns about 350,000 acres in the region with as much as 1.5 billion barrels of recoverable reserves, is also betting big on the play. The company has budgeted $1.5 billion to develope its acreage with plans to drill 150 wells this year. Even for a big company like Anadarko, those are substantial figures.
The biggest play since the Bakken All of this activity has sparked a boom in the Colorado energy industry. According to numbers provided by the Colorado Oil and Gas Conservation, state oil production hit a 50-year high of 48 million barrels in 2012, up 26% year over year. Early reserve estimates suggest that the play could hold an estimated 3.6 billion barrels of recoverable oil equivalent -- roughly on par with its Bakken rival.