Industry officials call for patience in slow-moving Niobrara Shale oil play

But don’t give up on oil from the area too quickly, say those who watch the Niobrara play’s progress.

Development of the oil-rich underground zone has cooled as testing of the geology and consolidation of interests in the play slowed action in the state’s southeast counties of Laramie, Platte and Goshen, said Michael Bodino, head of energy research for Global Hunter Securities LLC.

“I think a lot of people thought we would ramp up much faster, initially,” he said.

Over the past year, the portion of the Niobrara in Wyoming’s southeast received a lot of attention from energy companies that snapped up mineral rights, began collecting geologic data and planned to drill.

But now?

“It’s just slow going down there,” agreed Tom Doll, superintendent of the Wyoming Oil and Gas Conservation Commission.

Yet Bodino, who keeps a close eye on many of the companies involved in the play, and Doll, who regulates them, say the drilling rigs are likely on their way despite the delays and the mixed production results.

“It’s been an interesting evolution over the last year,” Bodino said. “I think we’re still in the early days in this play, and I think there’s still a long way to go.”

Hit-and-miss production

Doll, Bodino and John Robitaille, a vice president at the Petroleum Association of Wyoming, all agreed the play hasn’t seen any eye-opening well production totals.

To put it simply: “We haven’t seen a really big well,” Robitaille said.

There’s been nothing in Wyoming to match the landmark EOG Resources Jake 2-1H well in the Niobrara in Colorado’s Weld County, just across the Wyoming border.

That well, which sparked interest in the Niobrara, initially produced the equivalent of 1,558 barrels of oil per day in October 2009, although that slowed to an average of 555 barrels of oil per day over its first three months.

In contrast, production from Niobrara wells in southeast Wyoming has been hit or miss.

SM Energy said Aug. 3 its three wells in the area averaged production of the equivalent of 950 barrels of oil a day. For results released by the companies drilling in the area, that’s on the high side.

A day before the SM Energy announcement, Marathon Oil reported its wells in both states averaged the equivalent of between 200 to 300 barrels a day.

Since December, Rex Energy, QEP Resources and Petroquest Energy have reported drilling wells that haven’t produced commercial totals of oil.

Mark Papa, chief executive of EOG Resources, told investors in March he was “cautiously

optimistic” about the Niobrara play and called for more data.

That was a much-noticed shift in description from a month earlier, when Papa told analysts he was encouraged by the results from EOG’s Niobrara leases in Colorado and Wyoming.

Geology perplexing, promising

The geological complexity of the area has led to mixed results from wells drilled into the Niobrara, Bodino said. He told of one example in which side-by-side wells produced very different results.

“Everybody went out there quickly to permit operations, drilled a few wells, and then took a step back and said, ‘We need to read the seismic data,’” he said.

Speaking of the play more generally, Robitaille of the Petroleum Association of Wyoming said there’s still a lot for companies to work out.

“We know there’s oil there,” he said “The question is what’s the best way to get it out, and we haven’t made it that far at this point.”

But the seismic surveys, which ranged across southeast Wyoming earlier this year, have shown other promising formations for companies to find energy underground, including the Codell, the Pierre and the Greenhorn, Bodino said.

In early July, Samson Oil & Gas Ltd. announced plans to drill into the Codell, a layer of sandstone adjacent to the Niobrara, from leases in Goshen County.

The increasingly accurate data about what’s underground means companies are getting a better idea of where to drill to find energy, even if it’s not into the Niobrara formation that has had all the buzz.

“This is not a one-trick pony,” Bodino said.

Rigs are rare

While a number of companies have found the rigs they need to drill into the Niobrara in Wyoming, industry officials say one problem is there still aren’t enough.

The Wyoming Oil and Gas Conservation Commission issued 180 permits to drill in Laramie, Platte and Goshen counties since the beginning of the year, with 122 of those just in Laramie County.

Robitaille, of the Petroleum Association of Wyoming, said the booming Bakken Formation play in the Williston Basin of North Dakota and Montana is drawing many of the rigs and much of the manpower that could be used to drill for oil in Wyoming’s southeast.

“The rigs and the crews, they’re up in North Dakota going crazy,” he said. “Those guys are drilling like mad up there.”

According to a report issued Friday by Baker-Hughes, there’s a single drilling rig in operation within the three-county area, at a site southeast of Cheyenne.

Doll, the state’s oil and gas superintendent, said there is word more rigs will soon be drilling in the area.

While he says he won’t to speculate on the lack of activity, he pointed out that there’s a connection between the lack of drilling and the lack so far of Wyoming Niobrara wells with major results.

“Part of it is that there’s just been no major high-volume discoveries,” Doll said.

Bodino said companies’ moves to consolidate their interests in the area and attention from companies buying into the play have slowed drilling, as has the step back to examine geological data. But the drilling should resume soon.

“I think you’re seeing a gear-up now, back up to activity,” he said.

MDU Resources Group, with 65,000 acres under lease in Goshen and Laramie counties, said it plans to drill two wells into the Niobrara by the end of the year.

If the wells prove positive, the company said it will drill an additional 12 wells next year. Several other companies have announced drilling campaigns for the area through 2011 and into next year.

Patience needed

Southeast Wyoming, the northern portion of the Denver-Julesberg basin that extends into northern Colorado, will be just one of several “blobs” of activity in the basin as producers search for and find the production results they seek, Bodino said.

“I think it’s going to be under evaluation for the next year or so before we start getting our arms around this,” he said.

Robitaille says he tells people who ask about the Niobrara that the play is in a very early stage of development.

“I’m not giving up on it; there’s plenty of oil out there, but we’ve been saying all along that this isn’t anything close to what is going on in North Dakota,” he said, referring to the monster Bakken play, which could contain 2 billion barrels of recoverable oil using today’s technology.

“Keep in mind that took five or six years to figure out and to get going,” he said. “And I think we’re in that same situation in southeast Wyoming.”