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The Next Big Pay?

Steve McManamen
News-Record Writer
September 11, 2010

Oil and gas drilling companies have been scrambling for acreage in southeastern Wyoming, spending record amounts at state oil and gas leasing auctions in 2010 for a chance at striking oil in the mostly unproven area.

Their target: the Niobrara shale formation. This layer of shale has been one of the top oil and gas plays in the country spanning eastern Colorado and western Nebraska in what is called the DJ Basin. Recently, that basin has been found to expand into southeastern Wyoming.

But geologic formations — and oilmen for that matter — do not tend to pay much attention to county lines and as a land rush hits the southeastern corner of the state, oil and gas exploration companies are already looking north to Converse and Campbell counties.

If the Niobrara formation in southeastern Wyoming proves to be more than just speculation, companies will soon be in Campbell County, said Tom Doll, Wyoming oil and gas conservation commission supervisor.

Whether it is the Niobrara that draws the companies or the other shales in the Powder River Basin, Doll thinks Campbell County will most likely see an increase in horizontal drilling because it is a well developed “oil province.”

“There has been a lot of oil drilling in that area. So there is infrastructure, there is also a good strong knowledge base and a lot of those people will be looking to try some horizontal wells,” he said.

Dan Coolidge, Campbell County commissioner and owner of National Pride Operating Co., a local oil and gas production company, has been following the Niobrara development and agrees with Doll — but only if it proves profitable in southern Wyoming.

“The south end of the county certainly has Niobrara potential and even up into central Campbell County,” said Coolidge, a petroleum engineer.

If oil and gas companies are as successful as they are hoping to be in southern Wyoming, Campbell County could see another oil boom, he said.

“It would be big. It potentially could be similar to the last coal-bed methane boom we saw. Maybe not quite as intense, but it would certainly create a lot of jobs,” Coolidge said. “It would create revenues for the local governments and it would be no different than any other boom we have seen over the past 40 years.”
Cracking the Niobrara

Shale formations like the Niobrara are not a new target for the oil and gas industry, but lately they are being looked at in a whole new light.

Shale is fine-grained sedimentary rock mostly composed of consolidated clay or mud. Shales occur throughout the United States and often contain oil and natural gas.

But shale formations have long been a frustration to oil and gas companies. They are dense and don’t give up their oil and gas reserves easily. Wells drilled into them can usually only pull up oil from right near the well because the tight shale prevents oil from traveling very far to the well.

That is, until recently.

The key to extracting oil and gas from shale formations has been cracked — literally. New technology, including hydraulic fracturing and horizontal drilling, is allowing companies to pull tens of thousands of barrels of oil and millions of cubic feet of gas from the once stubborn shales, launching a wave of oil and gas booms in old oil fields and overlooked areas of the country.

That is what is happening in North Dakota with the Bakken shale formation, in Pennsylvania and New York in the Marcellus shale formation and in Colorado, Nebraska and now Wyoming with the Niobrara formation.

The southeastern corner of Wyoming has not seen much oil and gas exploration, and a few counties like Goshen and Platte counties have not seen any.

That changed when the EOG Resources, a Houston-based company, used the new technology to drill a well into the Niobrara formation just south of the Wyoming border in fall 2009. Not many horizontal wells had been drilled that far north in the Niobrara shale and geologic maps didn’t show oil reserves being worth the effort in Wyoming.

But EOG Resources’ well produced 50,000 barrels of crude oil in its first 90 days, according to a company statement. The company first acknowledged the well and the area’s potential in April, sparking the land rush.

Niobrara in Campbell County?

The land rush has more or less stayed confined to Laramie, Goshen and Platte counties in Wyoming. While the records rooms in those counties are seeing a flurry of landmen looking for landowners, the records vault in Campbell County has remained slow.

“Where they are stopping there, basically at Douglas, is for the Frontier formation. The Frontier kind of stacks out there at the end (south) of the (Powder River) Basin, but the Niobrara is above the Frontier,” Doll said.

But EOG Resources and a few other companies are again betting against the common assumptions about the shale and trying to stay ahead of the game. It is leasing acres in northern Converse and southern Campbell counties even before drilling really has started in southeastern Wyoming.

There are currently 20 permits to drill horizontal wells in Campbell County. Most of those are into shale formations like the Niobrara.

In fact, the Niobrara formation was drilled into many times in Campbell County in the late 1980s and early 1990s, according the Oil and Gas Commission website. But things have changed since then, Doll said.

“In those days, they were going after 50- and 60-barrel-a-day wells instead of 500- and 600-barrel-a-day wells with horizontal drilling. The technology just wasn’t there then and it is now,” he said.

A spokesman for EOG Resources would not speak about the company’s plans in the Powder River Basin, but the company has gotten more than 30 permits to drill in Campbell County in the past two and a half years, according to the Wyoming Oil and Gas Commission website. Most of the records about the permits are being held confidential.

Not all of EOG Resources permits are for horizontal wells, but many of them are and their targets are the Niobrara and two other shale formations, according to state permit records that are available. Most of EOG Resources’ permits are along the Campbell County and Converse County line near Highway 59. A few oil rigs already have sprouted up in the area.

A recent U.S. Geological Survey oil and gas assessment of the Powder River Basin in Wyoming and Montana found the Niobrara shale covers most of southern Campbell County and extends northwest into Johnson County.

The assessment identifies “sweet spots” where the oil is most likely to be recovered and estimates the Niobrara formation in the Powder River Basin has undiscovered, but recoverable, reserves of 227 million barrels of oil, 227 billion cubic feet of gas and 13.6 million barrels of natural gas liquid.

That is a significant amount of oil that would provide work for local rigs and oil field workers for some time, industry experts agree. That is more than the total amount of oil produced in Campbell County in the entire 1990s, according to calculations by The News-Record using numbers from the state oil and gas website.

Not Just the Niobrara

The Mowry shale formation, which is underneath the Niobrara, might be more promising for horizontal drilling in Campbell County than the Niobrara, Coolidge said. At this point, there are more horizontal permits for the Mowry than the Niobrara in Campbell County.

The Mowry has estimated recoverable reserves of 198 million barrels of oil, 198 billion cubic feet of gas and 11.9 million barrels of natural gas liquid, according to the USGS assessment.

That is a significant amount, if it can be extracted. Those two formations alone would equal about two-thirds of the total amount of oil extracted in Campbell County between 1978 and July 2010.

“I know there are also several other formations they (oil and gas companies) are going after,” Doll said. “Some of them are sand and some of them are shale. They have been drilling east of Wright and have been getting some pretty good wells, so I think those are some of the areas.”

Whether it is actually shale oil they are going after, or if it’s tight oil sands, Doll said horizontal drilling really gives the operator an opportunity to be successful because they can intersect those natural fractures and then “frack” into the secondary fractures instead of having a well bore with just a few perforations into it or just a hole that is six and a half inches in diameter.

Rig Shortage

The creation of jobs and tax revenue for the county is far from certain, even if the shale formations in Campbell County prove profitable. Those jobs would be on oil rigs, which are hard to come by these days. Many of the rigs have gone to the oil shale plays in North Dakota and Pennsylvania, leaving very few in Wyoming.

“I think the biggest thing right now would be the availability of drilling rigs,” Coolidge said. “Right now, the word is there is about 160 rigs working in the Bakken play (in North Dakota) and they need some 50 more.”

But speculations, economics and rig scarcity aside, drilling an oil or gas well anywhere is always gamble. But if you’re not into gambling, you’re probably not in the oil business.