Playing the Next Big Oil Rush: Part 2
We know about the U.S. energy boom, but have you heard much on the Niobrara? Or the Wattenberg? The DJ Basin, which houses both these plays, offers plenty of growth for investors looking to capitalize on the next big thing.
It's a Bonanza!
Bonanza Creek Energy is heavily invested in the Wattenberg part of the play and plans on spending 80% of its capex to run three horizontal rigs in the area. The Wattenberg is heavily weighted toward liquids with over 60% crude oil and NGL on top of that.
Bonanza Creek has 32 million boe in proven reserves in the Wattenberg play, but that is just the tip of the growth story. Bonanza Creek had 3P reserves (proven plus probable plus possible) at an additional 215 million boe at year end 2012. Those reserves are weighted 60% toward crude oil and 40% wet gas. This is a very profitable production mix, but there is more than just that.
With 3 rigs up and running in the area Bonanza Creek wants to start completing its 1,083 net locations in the Wattenberg. This gives a company like Bonanza Creek, with a market cap of $2 billion, a lot of growth potential.
~75% of Bonanza's production mix from horizontal wells is crude oil, which combined with ~86% of Bonanza's wells being completed with horizontal drilling points toward an active shift toward liquids.
Any E&P player can talk about shifting to liquids production and guiding for higher margins, but Bonanza is able to both talk the talk and walk the walk. A company that can execute is worthy of an investment; a company that misleads investors is worth throwing away. Bonanza Creek has proven it is committed to shareholder value and being able to deliver.
Another company bent on proving itself to investors is Anadarko Petroleum , which also has operations in the Wattenberg.
Anadarko Petroleum sees roughly 4,000 horizontal locations to drill in this play. From 2008 to 2013, Anadarko plans on increasing production by 250%. While this may seem like some extraordinary growth, it really is just the beginning.
In 2013 Anadarko plans on completing roughly 350 wells, which leaves it with over a decade of new well completions to carry on with. Going forward Anadarko will keep seeing production growth from the area, with plans to utilize longer laterals, smaller spacing, and faster completions.
Anadarko has roughly estimated that it can recover 350,000 boe per well, which is smaller than that of Whiting Petroleum's average of 400,000 boe per well in the region. Whiting has been able to utilize better drilling techniques to push up recovery rates from 400,000 boe to 450,000-500,000 boe. If Anadarko can get even close to those kind of rates then its margins and cash flow will explode upwards with more well completions.
To truly capitalize on the play Anadarko is also building out its natural gas processing capacity. By the first quarter of 2014 Anadarko plans on bringing online 300 million cubic feet a day of processing capacity, with plans to increase that by an additional 300 million cubic feet a day.
Anadarko sees the potential for stellar growth in the Wattenberg and wants to have the necessary infrastructure in place. By the end of 2012 Anadarko had 400 million cubic feet a day of processing capacity, so with this addition it should be able to service significant production increases.
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