DENVER -- The highest price per acre for leases in the Niobrara in the Wattenberg field is $10,600. Assuming the Niobrara B and C formations on 40-acre spacing and the Codell on 80-acre spacing, then the price could nearly quadruple to $40,000 per acre or higher, according to Welles Fitzpatrick, senior analyst and partner, Johnson Rice & Co.

Speaking at the Hart Energy 2013 DUG Bakken and Niobrara conference in Denver recently, Fitzpatrick said, “If you believe in what Noble Energy does – 16 or 32 wells per section, all of a sudden you have doubled or quadrupled the theoretical value. I don’t know if there will be 32 wells per zone. I do know that folks like Noble are generally conservative and have said at a minimum there will be 16 wells. They have expressed general confidence in 32 wells.”

He expressed his belief that the Wattenberg field is one of the most valuable – if not the most valuable – play in the Lower 48 states. Prices for acreage in Weld County, Colo., have gone up dramatically already in a very short time. In 2009, an operator could have spent $40 an acre in the core area of Wattenberg field. By 2010, the price had risen to $2,500. By 2012, the price was $6,100. During last year, the price hit $10,600 per acre in a large state lease sale.

The play as a whole is among the best in the Lower 48. “Not only can you get the best economics, but you can also get some the tightest spacing. With some of the best wells and tightest spacing, logic would dictate that you should have some the highest acreage value in the Lower 48,” Fitzpatrick continued.

Moving To Horizontal Play

The Niobrara has transitioned from a vertical play with decent economics to a horizontal play of not only regional or national importance, but to one of global importance. “If you look at OPEC’s annual report three years ago, they didn’t believe in the oil revolution. Last year, OPEC said, ‘Okay, the US will have some marginal supply.’ In 2012, they decided it was real and called out three plays as significant – the Eagle Ford, Bakken, and Niobrara,” he said.

“In the Lower 48, 55% of the rigs drilling horizontal wells in the Niobrara formation are in the Wattenberg field. The Wattenberg is dominated by Anadarko and Noble Energy. As we move east, Bonanza Creek and Carrizo are in the area Noble described as East Pony,” he added.

“Basically, everyone is increasing their rig counts. Because of the declining cycle times, that means they are increasing their well counts relatively dramatically.”

Noble and Anadarko, as large-cap leaders, are ahead in use of technology. The mid-cap followers – Bonanza Creek, PDC, and Carrizo – are about six months to four years behind the two larger companies in technology such as downspacing long laterals.

“Whether it is Bonanza Creek doing great work on the long laterals, or PDC going great work on downspacing in the Codell, or Carrizo helping to derisk the East Pony area, these companies are really confirming what we’ve seen out of the bigger guys. It is great to have more confirming data points,” he explained.

Hot Spots In Wattenberg Field

Fitzpatrick again pointed out that the Niobrara was originally a vertical play largely looking for gas in the Niobrara D and J sands. The play followed gas prices. “Then in 2009, the fun really begins. Noble came into the play and in early 2009 said, ‘We are going to go horizontal on this play. Immediately the excitement ticked up. The Jake well – the well that kicked it off the most in the public consciousness – produced 50,000 barrels in 90 days. At this point, every investor was starting to get really excited about this play.”

Noble then drills the Gemini-K well, which is considered the best well in the play to date after having produced 500,000 bbl. “More importantly, this well was drilled between 40-acre spaced vertical wells in the gas portion of the play. That well told you the vast majority of the Wattenberg field was open for business horizontally.”

Today, permitting inside Wattenberg field is still holding up. “This is one of those moments like we saw in the Barnett and Eagle Ford where the very broad play is beginning to core up,” he added.

In late 2011, Anadarko drilled its first two Codell wells. “Basically, you have Anadarko saying, ‘We have this whole other zone. We don’t know the spacing on it, but we know we have a two-zone play at this point,” he said. “You can see the Codell start to kick off with that announcement. I would like to point out that companies like PDC are spending half of their capital in the Codell.”

In 2012, the operators had 40-acre spacing, the Wells Ranch pad from Noble, long laterals, and estimated ultimate recoveries (EURs) of 750,000 bbls plus with some wells flirting with EURs of 1 million bbls.

“To sum it up, the play had a very great start. The play cored up and then the operators continued to deliver on all those things that turn it from a good play to a great play,” Fitzpatrick emphasized. “You can see why the southwest and northeast areas of the Wattenberg are really the focus of these companies. The Codell will focus drilling in southwest Weld County.”

“You have that high pressure, high volume of oil in place, and a low gas-to-oil ratio (GOR). Where gas-oil price ratios are now, that is what you want to be drilling and that is what they are drilling,” he said. “I don’t see any reason for drilling to shift back into the core area of the Wattenberg until gas prices are near $5/MMBtu.

“As you move into $5/MMBtu gas, you see this flip flop where all of a sudden the high GOR area of the Niobrara becomes competitive with some of the other predominant plays like the Bakken and Eagle Ford,” he continued.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.