3 Energy Stocks for Colorado’s Hidden Shale Play

by Aaron Levitt | April 14, 2014 9:35 am

While the Eagle Ford and Bakken are getting all the attention from energy investors these days, they aren’t alone in providing muscle to our nation’s oil production. There are plenty of other shale formations[1] waiting to take the crown.


One of the best lies within the land of craft beers and legalized marijuana.

Colorado’s Niobrara has the potential to be one of the most prolific shale plays[3] in the country. And like Eagle Ford and Bakken, it mean plenty of profits for the firms tapping its bounty — not to mention cheap feedstocks for the refineries on the West Coast.

For investors in energy stocks, the profit potential could be equally as huge. Betting on the undiscovered Niobrara and the energy stocks tapping its bounty could be one of the best bets in the oil & gas sector today.

Undeveloped & Bigger Than the Bakken

Like many of the shale formations dotting our countryside, hydraulic fracking is giving the Niobrara new life. Various energy stocks have been making plenty of profits from exacting oil and natural gas from the field for roughly 100 years now. However, it wasn’t until recently that the field has begun to really shine — thanks to the advanced drilling revolution. By fracking the Niobrara, producers have been able to unlock a plethora of oil, condensate and other natural gas liquids.

Just how much? Current reserve projections place the Niobrara ahead of the much-touted Bakken shale. That could mean huge upside for the energy stocks that have the most exposure.

Estimations by the Oil & Gas Journal put the amount of total amount of oil in Niobrara at a staggering 500 billion barrels[4] — with about 7 billion currently recoverable using today’s technology. Both of those amounts dwarf the Bakken formation. What’s more, drilling costs for the field are about $2.5 million less per well, and the Niobrara has a higher recovery percentage per well.

Another bonus — the gravity of the field’s oil is deliciously sweet[5] and matches what’s being produced in the Bakken and Alaska’s North Slope. That means it’s a refiners dream come true as it isn’t as hard to crack and turn into finished petroleum products. It’s also cheaper per barrel. Current prices for Niobrara crude clock in at around $85 per barrel. Alaskan crude is nearly $107.

And the recent slide in Alaskan and Californian crude oil production has the West Coast refineries looking for more feedstocks for their facilities. With the Niobrara just around the corner, the field could be the next be supplier to these end-users.

Add in the midstream infrastructure that’s already in place, and the field is starting to look like a major contender for shale king crown. But which energy stocks will be wearing that crown?

Three Energy Stocks To Tap The Niobrara

Producers only began fracking the Niobrara back in 2010, and with unconventional production in the field just getting started, investors have the ability to get in on the ground floor. Given the reserve and resource potential, they may want to bet on the leading energy stocks in the region.

One of the best energy stocks to buy for Niobrara exposure is Anadarko Petroleum (APC[6]).

After beating back the worst-case scenario relating to its legal battle with Tronox (TROX[7]) and the Department of Justice, APC is ready to begin life anew[8]. That includes focusing on domestic crude oil and the Niobrara.

Anadarko first entered the field by buying railroad Union Pacific’s (UNP[9]) resource unit back in 2000. It has since expanded its unconventional operations in the Niobrara and currently controls more than 350,000 acres in the oil-rich window of the field. Those holdings have continued to see rising production. Last year, APC produced an average of 56,000 barrels per day worth of Niobrara crude — an increase of about 34,000 barrels versus 2012’s numbers.

That production should increase even further has APC plans on spending nearly $1.5 billion[10] in the field this year and drill more than 360 wells. All in all, that should help Anadarko realize continued double-digit production gains.

One of the other prime Niobrara energy stocks is Noble Energy (NBL[11]).

NBL currently holds the largest acreage position in the region, at nearly 610,000 net acres[12]. That dominant position also makes it the leading producer in the Niobrara. Currently, Noble produces just 100,000 barrels per day from the field. And like APC, NBL is making the Niobrara a major focus of its future production gains.

Noble plans on spending about $2 billion in the shale formation this year and another $12 billion over the next five years. That should help NBL hit an aggressive 250,000 barrels per day production rate by 2018. With some of the lowest costs of production in the field — thanks to new multi-pad well drilling campaign — Noble should be able to realize immense profitability from its efforts.

Also getting in on the Niobrara is Bakken-player Whiting Petroleum (WLL[13]). In fact, WLL is so smitten with the play that it sold its assets in Texas last year in order to take advantage of the oil in Colorado. The firm currently controls around 123,000 acres in the oil-rich window of the play. While that isn’t as large as the positions of APC or NBL, it could mean be big things for WLL shareholders.

Whiting has found more than 3,300 potential drilling locations in that small amount of acreage. That’s about 28 years’ worth of potential drilling, given the firm’s current rates. What’s more is that the amount of oil in its acreage is nearly double the amount of its Bakken holdings[14]. Overall, the Niobrara could be considered a transitive event for energy stocks like WLL.

The Bottom Line: The Niobrara is heating up. Investors should bet on the energy stocks trio of APC, NBL and WLL to play the new shale field.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

  1. shale formations: http://investorplace.com/2014/04/shale-gas-energy-stocks/
  2. [Image]: http://investorplace.com/wp-content/uploads/2012/07/Colorado.gif
  3. prolific shale plays: http://investorplace.com/2014/03/energy-stocks-rice-eqt-rrc-rexx-swn-marcellus-shale/
  4. 500 billion barrels: http://www.fool.com/investing/general/2013/01/07/better-know-an-energy-play-niobrara-formation.aspx
  5. deliciously sweet: http://www.hydrocarbonprocessing.com/Article/3327751/Niobrara-shale-oil-could-save-US-West-refiners-from-dwindling-supply.html
  6. APC: http://studio-5.financialcontent.com/investplace/quote?Symbol=APC
  7. TROX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TROX
  8. begin life anew: http://investorplace.com/2014/04/apc-stock-anadarko-trox-kerr-mcgee/
  9. UNP: http://studio-5.financialcontent.com/investplace/quote?Symbol=UNP
  10. $1.5 billion: http://www.bizjournals.com/denver/blog/earth_to_power/2014/04/billions-to-flow-into-niobrara-crude-oil.html?page=all
  11. NBL: http://studio-5.financialcontent.com/investplace/quote?Symbol=NBL
  12. at nearly 610,000 net acres: http://www.nobleenergyinc.com/operations/u-s--onshore/dj-basin-265.html
  13. WLL: http://studio-5.financialcontent.com/investplace/quote?Symbol=WLL
  14. Bakken holdings: http://www.petroleumnews.com/pntruncate/138545455.shtml

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