Oil-industry players have been uncharacteristically chatty following a late-2009 discovery well in the oil-prone Niobrara play in the Denver-Julesburg Basin, according to Wells Fargo Securities E &P analysts.

The D-J Basin is a legacy Top 10 U.S. field, spanning a swath of land in northeastern Colorado that spills into southeastern Wyoming and western Nebraska. Typically, industry observers think "Wattenberg" when they hear D-J Basin, because Wattenberg Field, a vast basin-centered natural gas play just north of Denver, has produced more than 4 trillion cubic feet of gas.

That focus has been expanding since EOG Resources Inc. reported a discovery well this past fall. Activity is heating up as companies chase the oil-prone Niobrara, according to Wells Fargo senior analysts David Tameron and Michael Hall, and associate analyst Gordon Douthat.

Now, E & Ps are applying horizontal technology developed in plays such as the Bakken shale to targets in Weld County, Colorado, and Laramie County, Wyoming. "We note that it is extremely early in the play," Tameron says.

Within the D-J Basin, the Niobrara is 200 to 300 feet thick and consists of the Fort Hayes limestone and Smoky Hill shale. The primary trapping mechanisms are assumed to be primarily stratigraphic. "We have heard from a few management teams, including Noble Energy Inc., which indicated the focus of the play was the northern portion (of the basin), which is believed to be more liquids-rich. This incidentally squares with Noble’s recent acquisition (in the play)."

A number of companies have permitted, are drilling or have drilled wells targeting the Niobrara chalk or Niobrara shale in the D-J Basin, according to the analysts’ research. These include EOG, Noble, Anadarko Petroleum Corp., St. Mary Land & Exploration Co. and Petroleum Development Corp.

Rosetta Resources Inc. and Delta Petroleum Corp. also have acreage in the D-J Basin, but their positions are in Yuma County, where Rosetta reportedly is drilling Niobrara chalk, and in Washington County, where Delta is involved. These are not near the most-active areas.

Not surprising, EOG’s Jake #2-01H discovery well—drilled with a 4,000-foot lateral in northern Weld County just west of Grover, Colorado—has generated the most attention. "Our sources indicate the well is producing from the Niobrara at approximately 7,280 feet," according to the analysts.

"Field information pegged this well at IP rates of 1,700 BOE (barrels of oil equivalent) per day, and according to our sources, this well produced 34,600 BOE and 17.8 million cubic feet over the first 38 days."

Based on the analysts’ calculations, EOG’s well produced an average of nearly 1,000 BOE per day during the first 40 days––in other words, a very economic well. "We understand that EOG has or is drilling the #8-31 Elmer well, which is roughly one mile from the Jake #2-01H well. EOG has also permitted at least another six wells, which we believe are all in Weld County."

The discovery well is in an area that has not seen significant drilling activity, according to Tameron. Big, legacy Silo Field, which has produced more than 10 million barrels of oil and 8.7 billion cubic feet of gas during the past 30 years, has Niobrara production, but is 25 miles north of Jake #2-01H.

As for Noble, it has significant Niobrara potential. The company has reportedly spudded two horizontal Niobrara wildcat tests. "Combined with its current assets in the basin, Noble now has a dominant footprint in the D-J of 530,000 net acres. We also have heard that Noble recently picked up another 225,000 to 250,000 acres from a private Denver-based company in northern Weld County and extending into Laramie County in Wyoming," says Tameron. At press time, Noble had not confirmed the acreage buy.

Petroleum Development Corp., "pound for pound, may have the most exposure," Tameron says. "Petroleum Development has a total of 67,400 net acres in Wattenberg, with the majority of the acreage located in Weld County. Of this acreage, the company says it has developed 43,400 of the acres, with another 24,000 net acres classified as undeveloped."

The company drilled a horizontal Niobrara test in 2006, with somewhat disappointing results. Given new technological applications and crude prices, the analysts expect the company to revisit the play.

Another large-cap name with significant exposure is Anadarko, via acreage it acquired from Union Pacific Resources Group Inc. in the 1990s and from Kerr-McGee Corp. a few years ago.

Union Pacific was instrumental in developing Silo Field, and Kerr-McGee was one of the primary operators in the D-J Basin. In addition, through the legacy Union Pacific Railroad land grant, Anadarko likely owns the royalty interest on a large portion of its acreage, the analysts say.

"Hard to say how much acreage is ‘prospective’ for the Niobrara, and we recognize that Anadarko has farmed out some of this acreage through various agreements over the years. Regardless, if horizontal Niobrara becomes a play, Anadarko has meaningful exposure."

In Wyoming’s version of the play, Chesapeake Energy Corp. apparently drilled a successful Frontier/Niobrara test, Wagonhound #23-1H, in November 2008, in Converse County in the Powder River Basin. Last year, the well was producing less than 500 BOE per day, but recent indications are that the rate is now closer to 800 or 900 daily.

"At a recent conference, Chesapeake cited a 1,000-BOE-per-day well, and this may be the well to which it was referring," says Tameron. Chesapeake also drilled a 17,000-foot Upper Cretaceous Niobrara/Frontier test in Converse County (spudded in August/ September), although results from that well have not been released.