In a heated market, more than 550,000 Niobrara acres may be up for grabs

A heated merger and acquisition market in the oil and gas industry, which is being driven in part by Asian buyers willing to pay a premium to secure resources, may entice private exploration and production companies to consider selling their assets in the Niobrara play, said IHS (NYSE:IHS) in a special report. 

One such transaction recently was the $270 million purchase of Marathon Oil Niobrara assets by a subsidiary of Japan-based Marubeni Corp. 

The IHS Herold 2011 Regional Play Assessment: Privates with Niobrara Acreage May be Inclined to Monetize, follows a report issued last month by IHS entitled the IHS Herold 2011 Regional Play Assessment: Niobrara Has Not Yet Proven to be a Resource Play, which analyzed well performance of the few modern horizontal oil wells present in the play and also compared initial production (IP) for those early wells against IP rates for median-producing oil wells in the core of the Bakken/Three Forks shale play. 

IHS points out that while there is growing optimism about the potential offered by the Niobrara horizontal oil play’s resources, an optimism pointed out to OGFJ last April by Rodman Energy Group vice president Jason Reimbold, the play's true potential will take time to evaluate.

“While our recent assessment clearly shows that more time and data is needed to better understand the potential of the Niobrara, Asian buyers are keeping the Niobrara deal values at roughly $5,000 per acre, which we believe is lofty relative to risked intrinsic value,” said Sven Del Pozzo, author of both studies and senior principal energy equity analyst at IHS. For that reason, noted Del Pozzo, “we believe private E&Ps may consider selling their Niobrara assets” in the heated market. 

The report, based on the limited disclosure from private companies, identifies a number of private E&P companies with acreage in the play and others operating wells. Some of the largest private acreage holders in the Niobrara include Cirque Resources LP, which holds 240,000 total net acres in the DJ and Hanna basins, followed by Laramie Energy II, which holds 110,000 total net acres in the DJ and North Park basins. Bonanza Creek Energy Co. follows with 63,000 total net acres in the DJ and North Park basins, which, according to the report, “is significant enough to attract a large company and reports 92 MMboe (million barrels of oil equivalent) of net resource potential.” 

Of particular interest, the report noted, was a 6,000-foot horizontal well drilled by Simray Production in the Silo field, which is located in Laramie County, southeastern Wyoming. The well was completed in November 2010, and posted an impressive IP (30-day) rate of about 500 Boe (95% oil) per day. 

“Again, while it is early yet,” said Del Pozzo, “based on our initial research of available data, we estimate there is more than 550,000 acres in the Niobrara play that belong to small private companies — acreage that could potentially be available as acquisition targets.”