Bloomberg: Shale Barons Find Fresh Powder in Wyoming

 There’s oil in them thar hills.  Photographer: Spencer Platt/Getty Images North America

There’s oil in them thar hills.

Photographer: Spencer Platt/Getty Images North America

The Permian basin is the lodestar of the U.S. oil business. But its very success has left an increasing quantity of barrels all fracked up with nowhere to go, punishing companies riding the Permian wave (just ask Halliburton Co.).

On the other hand, the backlog does let other regions step out of the Permian’s shadow. One is the Powder River Basin, or PRB, in eastern Wyoming. While it produces less than 200,000 barrels of oil equivalent per day, the basin made an unexpected splash on several E&P earnings calls last month. Most notably, shale darling EOG Resources Inc. showcased what had been a relative backwater in its portfolio. The company now boasts of potential resources there of more than 2 billion barrels of oil equivalent, more than 10 times the amount it had penciled in the previous quarter. The basin’s share of EOG’s inventory of premium prospects jumped from less than 2 percent to 17 percent.

In short, the PRB is generating something of a buzz. All basins do at some point; the Bakken, Eagle Ford and others all had their moment in the sun before most of the attention, manpower and investment moved elsewhere (by which I mean west Texas). Indeed, the PRB had an earlier brush with fame during the coal-bed methane boom more than a decade ago. So buzzes are to be treated cautiously, especially when they arrive coincidentally with the onset of troubles elsewhere (by which I mean west Texas).

Still, a company of EOG’s caliber can’t be dismissed. And others, including Anadarko Petroleum Corp., Devon Energy Corp. and Chesapeake Energy Corp., have also recently done deals or announced big plans in the basin. The number of rigs operating in Wyoming has risen fourfold since bottoming out at just seven in the summer of 2016.

Refilling The Basin

Having collapsed to almost nothing during the oil crash, drilling in the Powder River Basin has picked up again

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One thing the PRB has going for it is its low profile. The basin hosts relatively few companies, with EOG, Devon, Anadarko, Chesapeake and privately-held Anschutz Exploration Corp. holding most of the acreage. While an acre of land in the Permian can fetch close to $100,000, they have tended to change hands for less than $10,000 in the PRB.

The relative lack of development does mean less data from which to draw firm conclusions. But shale development is mostly a learning process, and there are tantalizing signs the PRB could reward diligence.

In a recent report, analysts at Robert W. Baird & Co. benchmarked companies in major shale basins on their wells drilled in the past 12 months. The PRB’s newcomer status is immediately apparent:

Fresh Powder

The Powder River Basin has fewer companies and much less drilling going on than more established shale basins

 Source: Robert W. Baird  Note: Number of companies refers to those included in Baird's analysis. Median wells drilled refers to the past 12 months.

Source: Robert W. Baird

Note: Number of companies refers to those included in Baird's analysis. Median wells drilled refers to the past 12 months.

With that caveat in mind, however, early results show promise. The median company in the PRB got 80 percent oil from its wells (although Chesapeake’s oil cut was much lower), on a par with other oily basins. Meanwhile, revenue per lateral foot drilled 1 also looks good:

Middleweight

The PRB holds its own when benchmarked on median gross revenue per foot  

 Source: Robert W. Baird  Note: Revenue from initial three months of production on wells drilled in the past 12 months. Basins ranked by company median. Assumes $50 oil and $3 natural gas.

Source: Robert W. Baird

Note: Revenue from initial three months of production on wells drilled in the past 12 months. Basins ranked by company median. Assumes $50 oil and $3 natural gas.

Underpinning those numbers is the fact that much of the current development in the PRB is in shallower sandstone oil reservoirs, typically requiring less intense fracking than true shale formations. The highest-ranked company in Baird’s analysis in terms of revenue per foot is privately held Ballard Petroleum Holdings LLC, which has been in the basin since 1993. When I spoke with Alexandre Ramos-Peon, a senior analyst at Rystad Energy, a research and analytics firm, he highlighted one of Ballard’s wells for the fact that it had produced more than 1,300 barrels of oil equivalent a day (91 percent oil) in its first three months despite a relatively short lateral length of 4,000 feet and only about 1,100 pounds of sand per foot. That makes for a cheap well.

It is only one well, of course. Still, David Ballard and his brother Jeffrey — president and senior vice-president of the company, respectively — say the cost of a typical well has dropped by around 25 to 40 percent over the past few years.

The Permian’s allure rests on it having multiple pockets of oil stacked like a layer cake stretching thousands of feet below the ground, making it target-rich for drillers. Nobody claims the PRB has that sort of potential, not least because of the paucity of data at this point. But the basin is also stacked, albeit with oil and gas split into a more-complex set of reservoirs; like a layer cake that’s been dropped and broken up. Complexity equals more-expensive wells, meaning precise drilling and smarter fracking are needed to make the economics work. Ballard says pad drilling — drilling multiple wells from a single location to save time — is established in the basin but not to the degree elsewhere, showing one obvious route to higher productivity for bigger operators with deep pockets.

This should make the PRB fruitful territory for the bigger services companies pushing more sophisticated drilling and completion techniques. Apart from Halliburton, Schlumberger Ltd. and drillers Helmerich & Payne Inc. and Patterson-UTI Energy Inc. should benefit.

And then there’s EOG, of course, for whom the appliance of science is something of a calling card (see this). That this company has put down a marker suggests real potential is there. Equally, though, having generated the buzz, the onus is now on EOG to show it can make that rock sing.


1.      Baird's analysis looks at the first three months of production from each new well, and standardizes pricing at $50 per barrel for oil and $3 per million BTU for natural gas, and doesn't take account of royalties. This allows for a more apples-to-apples comparison between the basins but doesn't reflect real conditions in terms of current pricing, hedging and regional pricing spreads.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.


 

To contact the author of this story:
Liam Denning at ldenning1@bloomberg.net

Producers in the PRB Have a Leg Up on the Competition

Forget the Permian Basin: This Oil Basin Is Where the Growth Is Right Now

Matthew DiLallo, The Motley Fool

"The Permian Basin, which stretches across western Texas and the southeast corner of New Mexico, is the fastest-growing oil-producing region in the world. Output currently stands at around 3.3 million barrels per day (BPD) and has increased an astounding 800,000 BPD over the past year, which represents more than half of the worldwide production increase. That fast-paced growth, however, is about to come to a screeching halt because there is only enough pipeline capacity to move 3.6 million BPD. While the industry is building new pipelines as fast as it can, the current bottleneck could last until late next year.

Because the Permian expects to slow to a crawl in the next year, it's opening the door for the Powder River Basin (PRB) of Wyoming to emerge as the industry's new growth engine. That gives producers with land in the region a leg up on the competition, which is why investors should put this area on their radar.

A monster discovery

Shale giant EOG Resources (NYSE: EOG) has been one of the leading developers of the PRB over the past few years. In May 2015, the company said that it discovered two formations in the PRB -- Turner and Parkman -- that contained high-return drilling locations. However, after increasing its return hurdle rate in 2016, only the Turner formation -- which holds an estimated 200 million barrels of oil equivalent (BOE) -- met its criteria to deliver a premium drilling return.

That didn't stop the company from continuing to explore its vast acreage position in the region. Because of that, the company was able to uncover two more formations that hold a treasure trove of oil resources. EOG announced these discoveries earlier this month, detailing that the Mowry and Niobrara shale plays held a stunning 1.9 billion BOE of recoverable resources, a more than tenfold increase. That put the PRB right behind the Permian Basin and Eagle Ford shale as the company's third-largest asset.

The new growth engine

Chesapeake Energy (NYSE: CHK) is also excited by what it sees in the PRB. The shale driller pointed out in its second-quarter report that the region was "quickly establishing itself as the growth engine of the company." That's after output in the area surged from an average of 18,000 BOE/d at the end of last year to 32,000 BOE/d by mid-July. Chesapeake expects its PRB production to reach 38,000 BOE/d by the end of this year and for it to more than double in 2019 compared to this year's average.

Driving Chesapeake's growth is its focus on the Turner. However, the company is looking at adding another drilling rig next year to possibly explore some of the region's other formations, including the Teapot, Parkman, Sussex, Niobrara, and Mowry. Given EOG's recent success in those latter two plays, Chesapeake Energy's acreage could also hold a treasure trove of oil riches in the region.

Brimming with optimism

Devon Energy (NYSE: DVN) and Anadarko Petroleum (NYSE: APC), meanwhile, have been scooping up drillable land in the Powder River Basin over the past few years. Devon Energy made a bold bet to buy acreage in the area in late 2015, spending $600 million for 253,000 net acres, which more than doubled its position. In the meantime, Anadarko Petroleum recently announced that it had invested another $100 million to lease land in the PRB, boosting its position to more than 300,000 acres.

While both Devon and Anadarko are still in the early stages of developing their acreage in the PRB, they believe it has the potential to be a meaningful growth driver in the coming years. Devon's production in the region is already on pace to grow more than 20% from last year's average. However, with its plan to double its activity level next year, the PRB could emerge as a third growth engine to complement its positions in the Permian and STACK shale play.

Anadarko, on the other hand, is still in the appraisal phase, where it has experienced success tapping into the Turner formation. Newly drilled wells from that play are delivering more than 2,000 BOE/d, with oil accounting for more than 80% of that output. Consequently, the company appears poised to pour more capital into the region next year, setting it up to potentially drive meaningful growth in the future.

It's the PRB's time to shine

With pipeline constraints expecting to slow the Permian down over the next year, several drillers are turning their sights to the emerging Powder River Basin. Given the strong drilling results companies like EOG, Anadarko, Devon, and Chesapeake have delivered this year, it suggests the region could fuel fast-paced growth for producers that operate in the area. Their ability to grow at a time when many rivals can't has the potential to give them an advantage over the competition, which could then enable these oil stocks to outperform their peers in the next year."

Wyoming Oil Saving the Day

Wold Energy Partners.jpg

Wyoming oil is saving the day, something that hasn’t been said for more than two years. State revenue forecasts are improving. The oilfield service industry is climbing. And the general mood has gone from “cautiously optimistic” to just plain “optimistic.”

Proponents point to high producing wells in the Powder River Basin, a flush of new applications to drill and most of all the rising price of crude as evidence of a turnaround.

The national benchmark price, West Texas Intermediate, eclipsed $65 a barrel last week, the highest it has been since before the bottom dropped out two years ago. Perhaps more importantly, the price has held steady within a favorable band for about six months, encouraging operators and Wall Street alike. The International Monetary Fund recently released projections that global economic growth will be higher than expected, while the national stockpile of oil has fallen for eleven consecutive weeks.

In Wyoming, a state depleted of once robust fossil fuel revenues, the recovery has spurred hope. Oil is just one of the three commodities that tanked in recent years, but its comeback has brought unexpected revenue right before a legislative budget session. The state is facing an $850 million shortfall, depending on how it’s calculated, due to the downturn in coal, oil and gas. That money that goes to schools, the Department of Health and basic government services from Cheyenne to Meeteetse.

The recent oil recovery has been strong in Wyoming and across the country, and for many it’s been surprising. But the resilience of the price rise that made this recovery possible is harder to define. The questions now are ‘How much staying power does the oil sector have?’ and ‘How well positioned is Wyoming’s eastern oil patch to take its place in the global uptick?’ The answers depend on who you ask.

The good, the bad,

the ugly

The outlook in Wyoming’s oil patch changed dramatically from the middle of 2014 to the beginning of the following year. The price of crude fell by half and it hadn’t held a sustainable price over $55 until this winter.

Phil Flynn, an analyst at Price Futures Group in Chicago said he’s not surprised. He’s been bucking the trend of pessimism for a year.

The best booms follow a time when the market was glutted, he said.

“It’s always the same at the bottom of every cycle,” Flynn said. “People get so bearish and make statements like ‘oil prices will never rise again.’ But they don’t look at what happens when oil prices crash.”

When the prices fell two years ago, billions of dollars in oil investment disappeared, he said. That adds up to expected production that won’t be there, on top of new projections of global demand, he said.

“If the economy continues to go the way it’s been going, we are going to need every drop of shale oil we can get to replace all the oil production investment that we didn’t see,” he said.

But Wyoming has reason to be cautious of the good news, because the price of oil is no less tenuous than it was, some say.

“The fundamental risks are all still there,” said Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming. “People are paying less attention to those than they did before, and it’s not clear whether they should be.”

Chief among these concerns is that U.S. production is higher than it’s ever been and will only rise, he said.

This boom to bust to recovery is typical of others, Godby said.

The financial market overshoots in one direction, then the other. A year ago, the sector was entrenched in pessimism, now it’s hopeful again.

“What’s going to cause that pessimism to reappear in the market is the question,” he said.

And Wyoming, currently relieved by a stream of oil dollars into dry coffers, is still suffering from the two years of downturn, he said.

“People move from cautious to taking for granted sometimes pretty quickly,” he warned. “The fundamental risks are all still there.”

Spending money

to make money

One thing is certain; the last six months have heartened Wyoming operators, small to large.

 

Bill Thompson, vice president of the Jonah Bank in Casper, said his oil and gas customers are in a better financial position now than they’ve been in since the downturn.

Those who were looking for more time to pay back loans are taking money out to expand operations, add trucks and employees. For the banker, the turnaround has been recent, over the last 90 days.

“There is this optimism around town that we are starting to feel,” he said. “It’s got a buzz.”

Jonah finances the smaller projects, existing wells that are no longer economical for major players but that a small company can make a profit from. Their loan amounts go up to about $5 million or $7 million. For Wyoming’s larger projects, it’s either major players like Anadarko and Chesapeake making moves, or it’s mid-sized companies following suit and using private equity money from high-risk, high-return investors. That kind of funding is flowing into Wyoming right now, said Peter Wold, of Wold Oil in Casper.

And it’s necessary for some firms to be able to take advantage of this uptick, he said.

Wold said the renewed optimism is coming from a mix of good news, from the economic growth picture to the business-friendly attitude in Washington.

He expects the price to hold, though it will go through ups and downs in 2018.

Wold is also confident because of the success of drilling in recent months. Wells are producing at astonishing rates, as operators continue to figure out how to tap the complex layers of the Powder River Basin.

“When you start hearing and seeing that type of thing,” he said, “That really lifts your spirits.”

Wyoming’s place in line

Wyoming is not first choice for the increase in oil and gas investment compared to Texas or Oklahoma, but it’s not last either.

“We have oil that’s, relatively speaking, higher demand,” said Godby, the economist, of Wyoming’s sweet crude.

“As oil prices go up, it’s only going to increase the chances that people are going to want to invest in oil,” he said. “And we are one of the places they could do it.”

Once thought of as the next big play, Wyoming lost its shine during the downturn, and operators turned to more profitable opportunities elsewhere. But interest in the state’s many layers of rock has risen.

Operators argue that’s for good reason.

For one thing, the biggest play in the country, West Texas’s Permian Basin, got too expensive even during the low price environment, said Bruce Hinchey, president of the Petroleum Association of Wyoming.

Operators started looking at Wyoming as a deal, and that competition pushed up the cost of buying leases in Wyoming’s Powder River Basin.

“We haven’t seen that in a long, long, long time,” Hinchey said of the $15,000 per acre leases sold in 2017. Companies were dropping millions simply to stake out a claim, he said.

“When you buy a lease like that, you want to make it productive, because you’re spending a lot of money,” he said.

Large companies like EOG Resources, Anadarko, Chesapeake and Devon have all made investments in eastern Wyoming.

Coinciding with the current uptick in price are new strides in the drilling plans that these companies have set up in earlier years.

The Bureau of Land Management released a draft environmental impact statement Friday for a joint oil and gas project between five major players north of Douglas. The 5,000-well project is planned over a 10-year period, and according to BLM’s estimates could generate 8,000 jobs.

Major players like EOG and mid-sized operators like Wold Oil are figuring out the puzzle of Wyoming’s rock. They are drilling horizontally, keeping within a band of oil saturated sediment for up to 2 miles.

“Clearly Wyoming is benefiting a lot from this,” said Godby, the economist, of the oil recovery. “How strong is this? That’s hard to say.”

Powder River Basin Mega-Project

5,000-Well Project Edges Forward in Wyoming

in Closing Bell Story / Energy News   by— Oil & Gas 360

January 30, 2018

Anadarko, Chesapeake, EOG, SM and Devon are partners in PRB mega-project

From the Casper Star-Tribune

The Bureau of Land Management released an environmental study on Friday for a 5,000-well oil and gas project in Converse County.

Five major players in Wyoming industry proposed the joint project, which would cover 1.5 million acres, just north of Interstate 25 between Glenrock and Douglas, and take place over a period of 10 years. Each well proposed is expected to last about 30 years, according to the environmental study.

It’s a hefty undertaking in a region of Wyoming that’s already expecting another oil and gas boom if prices hold.

Anadarko Resources, Chesapeake Energy, EOG Resources, SM Energy and Devon Energy are the partners on the proposal, first made in 2014, before the oil sector busted. The Bureau of Land Management anticipates the joint approach to drilling in the southern Powder River Basin will generate more than 8,000 jobs and between $18 billion and $28 billion in revenue.

“(The environmental study) has been an ongoing effort for several years,” said Jennifer Brice, a spokeswoman for Anadarko. The project, and the federal study, will allow a collaborative approach to development in the region, she said.

Federal, state and private interests are all impacted by the proposed project in the county. About 90 percent of the land is private or state owned. Only about 6 percent of the project’s 1,500 well pads will be built on Bureau of Land Management Land. The remainder is on the U.S Forest Service-managed Thunder Basin National Grasslands.

The Bureau of Land Management owns more than 60 percent of the minerals to be tapped.

The environmental study notes that the proposal calls for year-round development and exemptions to operate in sage grouse and raptor habitat. Of the 53,000 acres directly disturbed for pipelines, roads and pads, about 21,000 acres may be disturbed for the full life of the project.

Converse County is no stranger to oil and gas development. Douglas was in the heart of the 2014 boom, when oil prices eclipsed $100 a barrel. Recently, local officials have signaled that increased industry activity is on the way in 2018.

Companies like Anadarko have already applied for thousands of permits to drill in Converse County, stoking expectation by locals of a boom to rival 2014.

Interest in Converse County has excited some of the Wyoming-based operators who are gleaning information on how to approach the multilayered Powder River Basin from other major players.

Tapping the Powder River Basin north of Douglas has been front and center for the Wold Oil company since last year. The company completed a horizontal well in December north of Glenrock on a pad that can hold more than a dozen more wells, and Wold has moved on rapidly to other drilling in the region.

So far, activity has had some impressive results, said Peter Wold, of Wold Oil Properties. But there are still mysteries in the Powder than can only be solved by more activity, he said in a recent interview with the Star-Tribune.

“I still think we have some work to do to unlatch the key to the ultimate success of the PRB,” Wold said. “We are going to need more wells out there.”

Others are looking at this development with concern.

“I don’t think we’ve seen this scale of drilling,” said Jill Morrison of the Powder River Basin Resource Council, a landowners advocacy group based in Sheridan. “It’s going to be a new, big scale on the landscape. If they don’t do it with a lot of care, it’s going to have some very long-term impacts.”

Morrison’s concerns include water resources to feed this level of drilling activity, and the proper disposal of waste water, as well as air quality impacts and wildlife habitat fragmentation.

One of the issues raised in the environmental study is how the project will impact sage grouse, an imperiled bird that is protected by state and federal provisions. A key habitat for the grouse is located within the project boundary.

Public comment is open until March 12. The Bureau of Land Management will hold three public meetings on the project in Douglas, Casper and Glenrock.

 

5,000-Well Project Edges Forward in Wyoming

Western Energy Alliance Member Jarred Kubat Explains Leasing and Development Obstacles to Congress

jarred

Wildcatter Weekly

January 23, 2018

President's Message

Introducing Our Feature on Small Independents

Last week, the House Natural Resources Committee held a hearing on actions the Interior Department is taking to eliminate onshore energy burdens. We’re proud that two Western Energy Alliance members were outstanding witnesses who effectively explained the obstacles to responsible leasing and development to Congress.

Alliance board member Shane Schulz, QEP Resources, discussed how nonfederal lands in places like Texas, where the regulatory regime provides less risk and more certainty, are able to attract more capital than public lands. Jarred Kubat, Wold Energy Partners, discussed how delays, such as the 415-day average delay between parcel nomination and lease sale, are a deterrent to development, especially for small businesses like Wold.

Thank you to Shane and Jarred for spending the time and effort to educate Congress on these public lands issues! The hearing was a first step for the Committee as it crafts legislation to address those leasing obstacles. The resulting bill will likely be a companion to the permitting bill, the SECURE American Energy Act, which the Alliance has also been actively engaged in.

Highlighting the Small Independents

As you may know, Western Energy Alliance was founded in 1974 as the Independent Petroleum Association of Mountain States, designed to be a voice in Washington on federal issues that affect independents. While we lost “independent” from our name in 2010, we didn’t change our mission. Our advocacy is still focused on small independents. To that end, I’d like to kick off a new periodic feature of those independents that form the backbone of our membership.

Since Jarred was just testifying on Capitol Hill, now is a good time to highlight Wold Oil. The company has been a member for many years, and we’ve enjoyed working with Jack, Peter, Court and others in this family owned and operated business founded in 1950. Jack currently serves on the Alliance’s Board of Advisors and PAC (Political Action Committee) Steering Committee. John Wold, patriarch of the Wold family, served on the very committee Jarred testified before as Wyoming’s Congressman in the late 1960s and early 70s. Congressman Wold also has the distinction of being the first geologist to serve in Congress.

Wold Energy Partners (WEP) is a four-year-old entity of Wold Oil, with 37 full-time employees, focused entirely in the Powder River Basin of Wyoming. WEP operates 119 wells, is a partner in 82 additional wells, and has acreage totaling 143,000 net mineral acres (264,000 gross acres) with greater than one billion barrels of recoverable reserves. WEP is truly an entrepreneurial endeavor as the product of 192 acquisitions and trades, with 394 individual federal leases representing 71% of its PRB acreage position.

I very much appreciate that the company was willing to share its experiences with federal leases before Congress. Thank you Wold Oil for your leadership on behalf of the small independent producer, and your membership in Western Energy Alliance. And thank you for kicking off our new feature!

If you’d like your company to be featured, please let me know.  

Kathleen Sgamma

President