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

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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