Tudor, Pickering, Holt & Co. Securities Inc. analysts say Niobrara wells cost less but make less after-tax return on investment.

How does the horizontal Niobrara oil play in the Denver-Julesburg Basin of northeastern Colorado and southeastern Wyoming compare with the oily Bakken and Eagle Ford?

Tudor, Pickering, Holt & Co. Inc. analysts say there may be more original oil in place (OOIP) in the Niobrara (30 million barrels of oil equivalent per square mile, including chalk and marl/shale intervals) than in the Bakken (10- to 15 million) but less than in the Eagle Ford (30- to 50 million).

In the Niobrara, when considering OOIP in the “B” chalk bench only, which is thicker and has better porosity than two other chalk benches (A and C), the TPH analysts estimate 5- to 10 million BOE—or less OOIP per square mile than in the Bakken or Eagle Ford.

Also, reservoir pressure is lower in the Niobrara, so productivity and recovery are lower and less consistent on average. And, development is being slowed by that many leases are held by production from other formations. Thus, there is no rush to drill to hold the acreage for future development and operators are more willing to let other producers do the spending to crack the Niobrara well-design and fracture-stimulation code. In the Bakken, for example, most leases are new and expire within three to five years if not drilled, so there is more activity.

“Also, most operators are acquiring 3-D seismic to better understand the (Niobrara) reservoir prior to drilling,” says Jessica Chipman, a TPH analyst and lead author of a new Niobrara study.

As for well spacing in the Niobrara, this may be similar to or tighter than in the Bakken and Eagle Ford when there is little natural fracturing in the well target. The Niobrara formation has low “fracability,” Chipman says.

Niobrara wells may cost less, however, because the formation is at a shallower depth than Bakken and Eagle Ford and there are oilfield services in the area, while there are fewer services that are indigenous to the Bakken in western North Dakota and eastern Montana. A Niobrara well in the D-J Basin area may cost $3.5- to $5.5 million, drilled and completed, compared with $6- to $9 million in Eagle Ford and $7 to $12 million in Bakken.

Chipman adds that a Niobrara well in the more remote Powder River Basin may cost $7- to $9 million.

The D-J Basin also hosts other productive formations: three Niobrara chalk reservoirs, the Codell sandstone and the Fort Hays/Greenhorn limestones. “We expect these intervals will be tested for potential as stand-alone plays over the next few years.”

Yet, Niobrara wells in the D-J Basin may average a lower after-tax rate of return due to less recovery of hydrocarbons than being surfaced in Bakken and Eagle Ford. Using $60 to $100 oil and $4 to $6 gas, an average Niobrara well in the gassier Wattenberg Field area may return 10% to 45%-plus on the dollars invested, 15% to 60%-plus in oilier sweet spots outside Wattenberg and 0% to 15% in marginal areas outside Wattenberg.

“These returns compare to 15% to 80%-plus in the Eagle Ford oil window and 15% to 200%-plus in the Bakken.” If the operator is able to tap a large, natural fracture system, the Niobrara return may improve significantly to between 100% and 200%-plus, she adds.

She and co-authors David Heikkinen and Brian Lively report, “It’s early days. We think the Niobrara now is where the Bakken was in 2005 as far as knowing which drilling and completion techniques work best and where the sweet spots and edges of the play are. A play in its infancy means more risk but potentially greater reward.”

They add that investors shouldn’t be turned off by that many Niobrara operators aren’t revealing much about their work in the play. “Many operators have kept public commentary close to the vest, so investors have formed a certain skepticism—a ‘no news means bad news’ view of the play. This lack of open discussion and resulting skepticism mean operators are lumped together with those we think are ‘doing the right things’ in the ‘better’ parts of the play undifferentiated from the rest.”

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.