5 Stocks to Play the Niobrara Shale
Enough of this cheap natural gas; let's talk American oil. The Bakken is booming, but there's another oil play out West that is just beginning to come into its own: the Niobrara shale. Like the Bakken, this shale has attracted many players in the energy industry. Below, you'll find a breakdown of five of the companies that are leading the way in the Niobrara shale.
What is the Niobrara shale?
The Niobrara shale sits in the Denver-Julesburg Basin and stretches between Northeast Colorado, Northwest Kansas, Southwest Nebraska, and Southeast Wyoming. It's a relatively new play, and exploration and production companies are focused on the shale's oil deposits sitting 3,000 to 14,000 feet below the earth's surface.
Samson Oil & Gas (AMEX: SSN)
The entry cost for Samson Oil & Gas in this play is $50 per acre, which is significantly cheaper than the $200 per acre rate in the company's Bakken projects. The company has 18,000 net acres and 56 net wells in the Niobrara.
Samson drilled its first joint-venture well with Halliburton (NYSE: HAL) in the play this year. After some initial difficulties regarding the well's pump, Samson was able to establish an encouraging initial flow-rate of 288 barrels per day. The company estimates that its stake in the Niobrara will ultimately produce 16.9 million barrels of oil.
GMX controls more than 40,000 net acres in the Niobrara. The company's work in the play is just getting started, which means the company can benefit from data coming from the early wells of other producers. As other companies de-risk GMX acreage, it waits on seismic information for more than 30,000 acres.
With more than 251 possible net drilling locations, GMX anticipates its Niobrara acreage may produce 58 million barrels of oil.
There are some vertical wells being drilled in the Niobrara, but most operators are using horizontal drilling and hydraulic fracturing to crack open the play's brittle chalk. Halliburton is the king of hydraulic fracturing, and one of the first service companies to start operating in the play.
The potential of the Niobrara is such that Halliburton is building a $20 million sand terminal in Windsor, Colo., to support its fracking activity. The 54-acre project is expected to begin operations this quarter.
Devon Energy (NYSE: DVN)
The company credited higher liquids production and higher prices for a 25% increase in third-quarter earnings. Devon's liquids production increased 17% over the third quarter a year ago.
An emphasis on liquids production is what is driving the company's development in the Niobrara. The company is using 3-D seismic analysis to maximize the potential of its acreage. Devon recently inked a joint-venture with CNOOC, offering the Chinese company a 25% stake in the Niobrara shale and four other plays in exchange for $2.2 billion. The deal will help offset a lot of the expense that goes into exploring an undeveloped region.
Ultra Petroleum (NYSE: UPL)
Ultra is a smaller outfit that plans on being a big player in the Niobrara. In August, the company picked up 100,000 net acres in the DJ Basin. Now in command of 131,000 acres, Ultra anticipates drilling and completing four vertical wells by the end of June. If all goes well, horizontal drilling may begin in the second half of the year.
Like many exploration and production companies, Ultra is cutting back on natural gas drilling and is directing the majority of its efforts toward oil production. Though the company cut its capital expenditures by 25%, much of what remains will be directed to its work in the Niobrara.
The development of the Niobrara shale is indicative of a trend at large in the oil and gas industry right now. Companies are pulling out of mostly methane plays like the Barnett shale and moving to oil-and-NGL-rich plays like the Permian Basin and Eagle Ford field instead. If your investments aren't trying to take advantage of these plays, make sure management provides an acceptable reason why. When the price of natural gas begins to rise again, plays like the Barnett will become popular once again, but the immediate future belongs to oil and NGLs.