4 Trillion Cubic Feet Later and the Wattenberg Still Has Plenty to Give

Although it was discovered in 1970, the Wattenberg Field's best days are yet to come

Jul 23, 2014 at 12:07PM

Back in 1970 the Wattenberg Field was discovered, and since then it has produced over 4 trillion cubic feet of natural gas. Largely considered a natural gas play, when US natural gas prices plummeted so did the margins of E&P players operating in the field. To revive profitability and growth, oil and gas companies brought horizontal drilling to the Wattenberg in 2009, opening up oil and natural gas liquids producing horizons for the first time. 

New horizons
As fracking was deployed to the Wattenberg, intervals like the Niobrara A, B, C, and the Codell were made accessible up to the oil and gas industry. When E&P players use horizontal rigs to tap into the Niobrara and Codell the production composition is 60%+ liquids, making those two plays very lucrative. Synergy Resources Corporation (NYSEMKT:SYRG) is banking on massive upside from the Niobrara and Codell as it pushes deeper into the play. 

Synergy Resources' proven reserve base comes out at a small 19.7 million barrels of oil equivalent, or BOE, but upside from its Niobrara position in the Wattenberg could push that up by 152.9 million BOE. To further expand its reserve base, Synergy Resources is going to develop the northern extension of the Niobrara shale, potentially yielding another 27.6 million BOE. Underneath the Niobrara is the Codell interval, which could add another 52.8 million BOE to Synergy Resources' reserves. All in all these two plays could boost Synergy's reserve base by almost 1,200%, a huge gain even for a small company.

To develop as much of those resources as possible, Synergy Resources is adding a third rig to its Wattenberg operations. With its production up 83% year-over-year last quarter, another rig will keep up the growth momentum. Cash flow from Synergy Resources' operations isn't nearly enough to cover its capex budget, which is why it's very important Synergy Resources grows fast enough to eventually generate free cash flow. 

As new plays have been discovered, the Wattenberg Field has proven itself to be more than just a barely profitable gas basin but also a high-growth liquids play. This is why Anadarko Petroleum Corporation (NYSE:APC) has high hopes for its 350,000 net acre position in the Wattenberg. 

Triple digit returns
Due to the 100%+ before tax returns Anadarko Petroleum is guiding to generate from its Wattenberg wells, Anadarko plans on completing one Wattenberg well a day this year. To do so, Anadarko has deployed 13 rigs to the Wattenberg while also taking the time to build out crucial infrastructure. 

The first quarter of 2014 saw two major midstream achievements for Anadarko. One was the completion of the Front Range pipeline, which Anadarko owns a third of along with DCP Midstream Partners and Enterprise Products Partners. Initially the pipeline will carry 150,000 bpd of natural gas liquids, or NGLs, which can be expanded to 230,000 bpd as production continues to rise. 

The second major achievement for Anadarko was the start up of its Lancaster cryogenic gas processing plant, as construction of Train I was completed. Each Train is capable of processing 300 million cubic feet of natural gas a day, so the plant's capacity will double when Train II is completed sometime next year. 

Expanding midstream infrastructure will allow Anadarko to drill ~360 wells this year without being hampered by a lack of transportation or processing capacity, rewarding shareholders with strong liquids production. Over the next few years Anadarko is guiding for 20%+ annually compounded production growth from the Wattenberg, which would vastly outpace its companywide output, making the Wattenberg one of Anadarko's best assets.

Foolish conclusion
Investors once discounted Wattenberg operations due to the low price of natural gas in America, but not anymore now that horizontal drilling has opened up very profitable liquids-rich intervals. The Niobrara and Codell horizons aren't the only liquids-rich plays in the Wattenberg; the Greenhorn and J-sandstone intervals a few hundred feet below could provide even more upside for Anadarko Petroleum and Synergy Resources.

As the oil and gas industry pushes deeper into the play, investors will begin to truly realize how much potential the Wattenberg is really holding. 

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Callum Turcan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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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.

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