The Niobrara Formation, which is found mainly in Colorado and Wyoming, has been touted by some companies as potentially having more oil than the Bakken, while others have found it to be a complete bust. This presents a problem to the many natural gas producers that are turning to the play in hopes of diversifying their revenue into more lucrative oil and natural gas liquids. Listen to these emerging players talk about the potential of the play and you’ll hear some very mixed signals. Why is the play a bust for some and a boom for others?

The big busts
First, let’s take a look at some of the big busts. Ultra Petroleum (OTC:UPL) was really hoping that the Niobrara would add some liquids production growth to the company’s natural-gas-heavy portfolio. Unfortunately, the Niobrara isn’t turning out to be the solution. On the company’s last earnings call, CEO Michael Watford said:

In Colorado's DJ Basin, our results in the Niobrara have been disappointing. Although our core and log data indicate the presence of oil in the rocks, the petroleum system is immature, under-pressured and not commercial. This has been verified by completion of test results from both a vertical and a horizontal well. Ultra assembled 139,000 low-cost acres and deployed it over the past two years and has no significant lease expirations until 2014. We'll continue to monitor industry activity in the region but have no immediate plans for additional exploration in the area.

It turns out that it’s not the only company having trouble in the Niobrara. Rex Energy (NASDAQ: REXX), a driller focused on the Marcellus and Utica, had also built up a position in the region only to drill a couple of duds. The company entered the DJ Basin in 2010 and was optimistic when giving the initial results of wells in close proximity to the acreage it was building up. Unfortunately, two years later it had written down most of the value of its acquired acreage and was looking to unload it. What happened is that it drilled two non-commercial wells and saw better opportunities to deploy capital within its current portfolio. Such are the risks of energy exploration.

The booms?
Other companies, like Quicksilver Resources (NYSE: KWK), see great potential in its Niobrara acreage. It’s not alone; it recently closed an acquisition and exploration agreement with Shell (NYSE:RDS.A) that covers 320,000 acres and an area of mutual interest that covers 850,000 acres. Quicksilver not only picked up some cash in the deal but it also picked up a world-class partner. It's also looking to further de-risk its acreage by signing on another third-party joint venture partner to help further fund its development. Quicksilver is very optimistic about the play and sees the Shell venture as validation of its efforts that this play will pan out. 

Shell’s not the only energy giant that’s looking for big things from the Niobrara. ConocoPhillips (NYSE:COP) has amassed 130,000 acres in what it believes is the newly identified sweet spot in the play. Last year it drilled four horizontal wells and saw early production rates in line with its expectations. In fact, the company is seeing higher liquids yields than the Wattenberg, which has been a big driver of value for Anadarko. Because of this, Conoco plans to ramp up its activities this year and drill 32 wells.

My Foolish take
The bottom line here is that oil and gas exploration is really no different than real estate: It's all about location. It would appear that both Conoco and Quicksilver have succeeded in finding the best location in the play, whereas Rex and Ultra ended up in the wrong neighborhood and have decided to give up. It’s a good reminder that even with all the oil and gas we’re finding these days, there’s still risk in exploration, and the Niobrara still has its share of them as companies continue to explore and develop it. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.