Highlands Natural Resources entered into a farm-in agreement in Colorado with Renegade Oil & Gas Co. LLC to drill up to six horizontal wells in acreage prospective for the Niobrara Shale, the company said July 25.
Highland will pay $500,000 to Renegade in the transaction, consisting of an initial payment of $250,000 for the right to drill the first two wells and a second payment of $250,000 for the following four wells, which will be paid when drilling on the third well begins.
Highlands is not obliged to drill any well until it has secured third-party financing.
Highlands will retain full working interest and will receive 80% of the revenue generated by the wells drilled on the farm-in acreage.
The farm-in acreage is bordered by ConocoPhillips (NYSE: COP) leases that have been delineated by producing horizontal wells ranking among the most productive in the Denver-Julesburg Basin.
Highlands can use ConocoPhillips’ well designs, completion methods and decline curves as analogs for its planned farm-in wells. Conoco has drilled numerous productive wells in its leases north of the farm-in acreage, including within the township of the farm-in agreement and in adjacent townships.
The majority of Conoco’s nearby horizontal wells, using optimized completions, produced between 50,000 barrels (bbl) and 100 Mbbl of oil in their first six months of production.
According to data from IHS and the Colorado Oil and Gas Conservation Commission, a well producing more than 50 Mbbl of oil in its first six months would rank among the top 12% of all horizontal Niobrara wells based on 2,943 wells with sufficient data history as of May.
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