The exploration and production industry reported a mixture of news regarding the development of the Niobrara formation during the second quarter of 2011. The play also attracted new operators looking to establish a foothold in this promising oil and liquid play.
The Good
EOG Resources (NYSE:EOG) was one of the first operators to investigate the Niobrara play, and started with its leasehold at the Hereford Ranch Field. The company kicked off the gold rush at this field with the Jake discovery well in 2009. The Jake well produced an average of 645 barrels of oil per day during the first month, and since early 2011 has produced at a stable rate from 250 to 300 barrels of oil per day.

EOG Resources believes that wells drilled to the Niobrara in this field will have lower initial flow rates than other unconventional resource plays, but also have a flatter decline curve.

EOG Resources has extended development to other parts of its leasehold in Colorado, and estimates that the company has demonstrated the viability of the Niobrara on 76% of its 220,000 acre position.

SM Energy (NYSE:SM) reported its first successful horizontal Niobrara well back in the summer of 2010. The company has moved steadily forward on development over the last year and drilled three Niobrara horizontal wells during the second quarter of 2011.

SM Energy reported the completion of one of these wells with average production of 950 barrels of oil per day during the first seven days of production. The company also added acreage prospective for the Niobrara in the Powder River Basin, and has been permitting wells here with the goal of exploratory drilling in late 2011.

The Bad
Continental Resources (NYSE:CLR) is a more recent entry into the Niobrara and has been working on its first horizontal well in the play. The company reported that the initial production rate of the well was below expectations. Continental Resources is not pulling out of the play, and plans to drill a second Niobrara well on its acreage shortly.

Whiting Petroleum (NYSE:WLL) is working on the Niobrara Shale at the Redtail Prospect in Colorado and has 75,000 net acres under lease here. The company reported the results of four wells completed during the second quarter of 2011, with three of the wells each producing less than 150 barrels of oil equivalent (BOE) per day.

The good news for Whiting Petroleum is that the fourth well was a gusher, and produced at a rate in excess of 1,300 BOE per day. The company plans to adjust the orientation and redesign the fracturing process for future wells at Redtail.

The Unknown
Many operators are at an early stage of development and have yet to complete any wells or disclose any production results. Quicksilver Resources (NYSE:KWK) has been slowing building up acreage over the last year and now has 210,000 net acres prospective for the Niobrara in the Sandwash Basin. The company expects to drill between eight and fourteen wells here in total during 2011. Quicksilver Resources has already finished drilling three wells and plans to start completion operations in August 2011.

The New
The Niobrara also continued to attract new entrants during the second quarter of 2011. Ultra Petroleum (NYSE:UPL) announced a 100,000 net acre position with its second quarter of 2011 earnings release. The company plans several exploratory wells later in 2011.

The Niobrara formation has stirred up the exploration and production industry due to the potential for horizontal oil development. Investors should be cautious about assigning a large value to undeveloped acreage here as operators are still defining the extent and productivity of the play. (For additional reading, check out A Guide To Investing In Oil Markets.)

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