Photo credit: Flickr/Maarten Heerlien

Colorado hasn't traditionally been known as a top state for energy production. According to some companies that's about to change, while others suggest that just not the case. Therein lies an investor's dilemma as it's still tough to tell if Colorado holds the next premier energy play or if it's just another place where drilling capital goes to die.

According to EOG Resources (NYSE:EOG) President and CEO William Thomas, Colorado's Niobrara play is no longer near the top of his company's list. In fact, it's more like fifth or sixth due to the "very inconsistent results" the company has seen from the play and the fact that it has much better places for its capital. He also believes that peers are "going to be experiencing the same thing" and that right now much of the industry is just watching those that are still drilling. EOG Resources isn't about to give up, but it does have better places for its capital these days. 

Premier results
To counter that, Noble Energy (NASDAQ:NBL) expects to triple its oil production in the region over the next five years. To put some perspective around that number, in five years Noble Energy expects to produce as much oil from its operations as the entire state does today. It's that potential that gives Chairman and CEO Charles Davidson a reason to call it a "premier play," and why Noble Energy is spending $1.7 billion in Colorado this year with plans to spend even more next year. 

The play has even drawn the attention of Bakken-focused Whiting Petroleum (NYSE:WLL). It recently announced that its next phase of growth would come from the Redtail Niobrara in Colorado. Whiting CEO James Volker has called the play the most exciting new prospect since the Bakken. He has also said that his company can get five-to-one or better on its money on each well it has drilled. 

Dry holes
Unfortunately, there are just as many companies with similar complaints as EOG Resources about the play's inconsistencies. Rex Energy (NASDAQ: REXX), for example, spent millions of dollars to lock up acreage in the state in an effort to add to its exposure to higher-margin oil. That move backfired after it encountered disappointing well results that forced Rex to reevaluate its plans. In the end, Rex Energy ended up divesting of its Niobrara acreage after taking a pretty large writedown on those assets. 

Ultra Petroleum (OTC:UPL), another heavy natural-gas producer like Rex, also struck out in the Niobrara. It found oil, but the petroleum system was immature, under-pressured, and not commercial. Ultra Petroleum has given up on its plans to further explore the area for the time being and instead will focus on drilling high-returning natural gas wells. 

Investor Takeaway
The key difference between a dry hole and a gusher is location. Whiting Petroleum and Noble Energy have secured some of the best locations in the play. Others locked up acreage in places that turned out not to hold the same commercial promise, which is why the results have been so spotty. It's a critical difference as it can mean the difference between triple-digit returns and a big loss.

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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.