2 Companies Dominating This Rapidly Growing, Little-Known Oil Play

A closer look at two companies seeing tremendous success in the Niobrara formation, a rapidly emerging oil-rich play in Colorado.

Mar 16, 2014 at 12:00PM

Most energy investors have probably heard of North Dakota's Bakken shale and South Texas' Eagle Ford shale, two of the fastest-growing oil plays in the country. But probably fewer have heard of the Niobrara formation, a relatively undeveloped oil-rich play in Colorado that has rapidly emerged as one of the hottest new liquids plays in the country.

The Niobrara formation is located primarily in northeastern Colorado's Denver-Julesburg, or DJ, Basin and parts of Wyoming, Nebraska, and Kansas, though parts of the play stretch as far north as the Montana-Canada border. Though the Niobrara is still in its early stages of development, some commentators have compared it to the Bakken because of its vast resource potential and high oil content.

While a number of new companies are rushing in to exploit the Niobrara's potential, such as Bakken-focused Whiting Petroleum (NYSE:WLL), which sold its properties in Texas for $816 million last year to ramp up activity in the Niobrara, two companies currently dominate the play.

Anadarko Petrolum Noble Energy Conocophillips Colorado Whiting Petroleum

Photo credit: Anadarko Petroleum Corporation.

Noble Energy
First up is Noble Energy (NYSE:NBL), an early entrant into the Niobrara and currently the largest producer in the play. The company commands some 609,000 net acres in the DJ Basin, of which 87% is located in the play's oil window, where it is primarily targeting the Niobrara and Codell formations. Noble's strong performance last year resulted in 45% year-over-year oil growth from the DJ Basin.

One of the biggest catalysts to improve the company's performance in the DJ Basin even further is its Integrated Development Plan approach, or IDP, which should lead to substantial cost savings. Already, the company's development costs at its East Pony IDP have fallen by about $0.4 million to $0.8 million per well, while operating costs are down by roughly $0.1 million to $0.3 million per well, thanks to efficiency gains from pad drilling and less water trucking.

As Noble implements IDPs across more of its acreage, it expects the net present value of its DJ Basin wells to rise by roughly $1 million per well. Considering that the company has identified thousands of potential well locations across its acreage, this could boost the value of its assets by more than $1 billion -- hardly a drop in the bucket even for a company with an enterprise value of $28 billion.

Next up is Anadarko (NYSE:APC), which commands 350,000 net acres in the DJ Basin's Wattenberg field. The company's Wattenberg production surged to an average of more than 56,000 boe/d last year, up by almost 34,000 boe/d over 2012 levels, and continues to grow rapidly thanks to improved takeaway capacity provided by the addition of the Plains Rail Terminal in November.

This year, Anadarko's takeaway capacity from the play will increase even further, as Western Gas Partners' 300 million-cubic-foot-per-day Lancaster cryogenic plant and the 150,000-barrels-per-day Front Range NGL pipeline -- owned jointly by Enterprise Products Partners (NYSE:EPD), Anadarko, and DCP Midstream Partners (NYSE:DPM) -- go into service shortly.

This is great news, because Anadarko's Wattenberg horizontal program generates a rate of return in excess of 100% at current prices and is the company's highest rate-of-return asset within its onshore U.S. portfolio. As the company further improves its operations in the play by optimizing lateral lengths, spacing, and completions and realizes additional benefits from its recent acreage exchange with Noble Energy, its returns should improve even further.

Will the good times keep rolling?
Thanks to the Niobrara's relatively high percentage of liquids and low development costs of roughly $4 million per well, Noble and Anadarko's drilling programs in the play are generating solid returns. And with takeaway capacity from the play expected to increase significantly, both companies are planning to accelerate development activity this year.

Anadarko plans to drill more than 360 Wattenberg wells with a 13-rig program this year, while Noble plans to drill approximately 320 operated horizontal wells in the DJ Basin. And with both companies having already identified thousands of drilling sites across their respective positions, double-digit production growth is likely to continue for several years.

Get ready for the next energy boom
Anadarko and Noble aren't the only companies benefiting from the record oil and natural gas production that's revolutionizing the United States' energy position. That's why The Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.


Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends DCP Midstream Partners and Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information