The Piceance is yet another region of North America that holds great promise to meet the energy needs of America in the 21st century, and the exploration and production industry is moving forward to develop the natural gas reserves of this resource rich basin. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)
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The Piceance Basin is located in Colorado, and contains natural gas and oil shale in abundant amounts. The basin has many productive pay zones, but much of the current industry attention is on developing the Williams Fork of the Mesaverde formation. This is a 3,000-foot thick section of tight gas sands.
Several companies are actively drilling for natural gas in the Piceance Basin. Williams Companies (NYSE:WMB) has 3.1 Tcfe of proved reserves in the basin on 190,900 net acres. This represents 68% of its total proved reserves.
Bill Barrett Corporation (NYSE:BBG) has 372 Bcfe of proved reserves in the basin. The company has two rigs working to develop its acreage, and plans up to 80 wells in 2009.
Berry Petroleum (NYSE:BRY) has proved reserves of 250 Bcfe, and has daily production of 20 Mmcfe per day from the basin. The company drilled 75 wells here in 2008.
The bigger oil companies are also developing the Piceance. Marathon Oil (NYSE:MRO) holds 9,000 acres in the basin. The company expects to drill 30 wells here in 2009, and 150 over the next five years. Occidental Petroleum (NYSE:OXY) has 125,000 net acres under lease in the Piceance Basin. The company added to its acreage here when it bought out the interests of Plains Exploration and Production (NYSE:PXP) in a two-stage deal in 2008.
There is more to the Piceance than just natural gas, as the basin holds tremendous amounts of oil shale reserves. The U.S. Geological Survey (USGS) estimated in April 2009 that the area held 1.525 trillion barrels of oil shale resources. This was up from the 1-trillion barrels that the USGS estimated in 1989.
Investors should note several things about this resource. The USGS admitted in the same report that "no economic extraction method is currently available" to develop this resource, so they couldn't assess how much is recoverable. Also, don't confuse oil shale with the oil that is extracted from the Bakken Shale, another play that is currently being developed by the exploration and production industry. In the Bakken, the rock is hydraulically fractured to release the oil. Oil shale in the Piceance must be heated to high temperatures to be developed.
The Bottom Line
Oil and gas companies are excited about the tight gas sands of the Piceance Basin, as it holds large amounts of recoverable reserves. This proves that natural gas shale is not the only game in town for the exploration and production industry. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)