1

Water Management for Shale Plays

 An Overview of the Niobrara Shale

Don Warlick – Warlick Energy/Houston

Infocast 3rd Water Management for Shale Plays Conference

 Pittsburgh – October 29, 2012

______________________________________
About Warlick Energy

An oil & gas intelligence firm in based in Houston with special experience in Unconventional 

Resources – has served the E&P, oilfield services & manufacturing and financial sectors 

since 1976

Two practice areas:

1 - Market Research -- Market studies involving new product potential, technology 

reviews, competitor analyses, market audit, acquisition search and evaluation, perception of 

image and performance, market forecasts, litigation support.

2 - Unconventional Resource Reports -- Warlick publishes a series of proprietary reports 

addressing unconventional oil & gas in North America.

More: www.WarlickEnergy.com

 

2
Leading US Unconventional Shales in 2012 – Wet Plays in Green

3
Focusing on the Niobrara

 A shale formation in NE Colorado, SW Wyoming, SW Nebraska and NW Kansas

 The DJ basin a significant part of the Niobrara, most significant drilling activity

 USGS estimates technically recoverable undiscovered continuous resources at 227 

million barrels of oil, 13 million barrels of NGL and 227 BCF of natural gas

4
Describing the Niobrara

 Niobrara geology is characterized by high porosity and low permeability

 Interbedded chalk a favorable reservoir medium that’s often naturally fractured; chalk 

sections enhance porosity and ability to be fractured

 The DJ basin accounts for most of Niobrara, in Colorado with most active areas of play 

in Weld and Yuma Counties

 Richest source rocks will have total organic carbon content ranging from 3% - 8%

 Wattenberg area of the DJ basin a somewhat shallow Niobrara play north of Denver 

with a significant natural gas deposit which may go to 7,000 feet

5
Describing the Niobrara...more

 Significant share of activity in Colorado with more than 80% of Niobrara drilling

 A diverse play with drilling depths from 5,500 – 7,500 feet mostly in DJ basin

 Horizontal laterals currently averaging 4,000 – 5,000 feet, and will be extending

 Completion costs will range from $4 million to $6 million, average = $5.2 million

 Hydraulic fracturing a significant share, up to $2 million per HZ well

 IP rates for DJ basin well can go from 600 – 1,600 BOEPD, 800 may be average

 EURs = 300 – 400 MBOE, so a minimum you are at say $80/barrel ~ $24 million

6
Most Active Niobrara Players

Noble Energy drilling about 30% of all Niobrara wells today

 Has 440,000 net acres and production exceeding 70 MBOED

 A huge 2012 capex investment here exceeding $1 billion

 They have water and sand resources plus dedicated frac spreads

 Focused on Wattenberg with drilling and completion costs ~ $7 - $8 million

 Typical 30-day IP’s ~ 600 BOED, 85% liquids

 EURs are in the area of 310 MBOE

7
Most Active Niobrara Players . . . more

Bonanza Creek Energy an active driller, may account for ~ 20% of Niobrara drilling

 Drilled 68 Wells last year, mostly vertical

 This year they plan ~ 120 Wells

 About 92 are vertical at slightly over $1 million each

 The balance are horizontals costing more than $4 million each

 Essentially all their activity in the Wattenberg

8
Most Active Niobrara Players . . . still more

Anadarko Petroleum could drill up to 15% of Niobrara wells this year, more growth coming

 Holds significant leasehold position in Wattenberg with primarily land-grant mineral fee 

acreage north of Wattenberg and into southern Wyoming

 Thereby a heavy concentration on Wattenberg horizontals, with plans for 160 wells during 

2012 compared to just 40 last year

 Sales mix = 60% oil, 10% NGL, 30% natural gas; recent IEP’s around 800 BOED

 Average well cost $4.5 million

Rounding out the balance of the Niobrara there are ~ 25 operators of record, several of 

consequence including Devon, Whiting, EOG, Marathon, ConocoPhillips, Chesapeake with its 

CNOOC JV... and now Shell.

9
Drilling in the Niobrara

 Crude and liquids are the big drivers in the Niobrara, lending attractive economics

 Our forecast basis assumes continuing investment and dedication to increased drilling by 

Noble, Anadarko and Bonanza... EOG, ConocoPhillips, Marathon can help

 

10

0

200

400

600

800

1,000

1,200

2010 2011 2012 2013 2014 2015

Wells Drilled in the Niobrara Shale 

High Case Mid Case Low Case
Recent Niobrara Deals/Activity in 2012

Carrizo Oil & Gas entered a JV with two India-based energy companies 

 The deal is part of Carrizo's plan to monetize some dry gas assets and instead focus on its 

liquids resources.

 OIL and Indian Oil Corp. have acquired an undivided 30% non-operated interest in substantially 

all of Carrizo's assets and operations prospective for Niobrara Formation oil development in Weld 

and Adams Counties, Colorado for ~$82.5 million

Quicksilver, Shell enter into a JV 

 They will jointly develop their Niobrara oil and gas interests in the Sand Wash Basin in northwest 

Colorado. Closing is expected before year-end 2012.

 The deal involves 850,000 acres with each company retaining a 50% WI in ~330,000 acres, 

retaining a right to a 50% interest in any acquisition within the area.

 Shell will be the operator of the majority of the JV

11
Recent Niobrara Deals/Activity in 2012 . . . more

DCP Midstream to double Denver-Julesburg capacity

 They recently began construction on their 110-MMCFD LaSalle gas plant in Weld County, CO

 In addition they are building two compressor stations to complement the facility, which should be 

in service by 2H 2013.

Noble Energy announces plans to spend $8 billion in the Niobrara 

 Houston-based Noble Energy Inc. announced plans to invest $8 billion in its Colorado 

investments over the next 5 years, developing Niobrara wells. 

 They expanded their holdings to 880,000 acres, now experimenting with increasing well density

 They plan to spend ~ $1.3 billion in Colorado in 2012.

12
What’s Important in Water Management

 Technology must be effective, satisfying all protocols imposed by oversight and 

regulatory entities (vendors’ oilfield history a plus)

 Quality of disposed/released volumes should be equal to or better than standards set 

for all volume releases into streams

 Re-use of treated water is much more important since earlier Marcellus upsets

 Costs must be reasonable, especially in light of growing water volumes

 Oil & gas companies are concerned about vendors taking responsibility for handling 

and being responsible for volume treatment, recycling, disposal.

 13
Water/Fluids Management for the Life of the Well

 We estimate that 520 to 690 shale wells will be drilled this year in the Niobrara

 By the end of2012 the Niobrara is estimated to have the following number of wells

 Shale Wells 1,156

 Conventional, Other 8,798

 Total 9,954

 Two opportunities for equipment , chemicals and services in the shales:

 - Those used in the drilling & completion process in managing frac flowback plus

 related fluids (such as drilling fluids, etc.)

 - Those required for long-term production & maintenance, largely involved with 

managing produced water

 

14
Water/Fluids Management for the Life of the Well...more

 Flowback and drilling fluids in shale well completions

 - Today’s hydraulic fracturing of shale wells call for 2-4 million gallons of water per well

 - In most of the plays the frac flowback is the volume of returned water, chemicals, proppant 

 that comes back up the wellbore

 - Typical frac flowback volumes can be at least 25% of frac fluid volumes 

 - e.g. a shale well with 4 million gallons on a frac job can have ~ 1 million gallons in flowback.

 Produced water and fluids

- Over a 25-year lifetime a typical US gas shale well can have 4 million gallons of produced fluids 

while a typical oil well averages ~ 18 million gallons 

- In many older US wells the water:oil production ratio can be > 50:1

- Principal constituents of produced fluids can include salt/brine, oil and grease (a measure of 

organic chemical compounds), various natural inorganic and organic compounds and naturally 

occurring radioactive materials or NORM.

15
Markets for Services in the Niobrara

 The top 7 US liquids-rich shales will account for more than $54 billion in all types of 

oilfield services expenditures this year

 Of that total we estimate $1.3 to $1.7 billion is for Engineering & Environmental plus Water 

Management equipment and services

 The Niobrara’s share could be as high as $275 million.

16
Niobrara Summary

 Remember...we are talking Colorado where there is more focused oversight and 

environmental concern which is characteristic of the Rocky Mountain states

 As in the other shales, the EPA, State entities, regional and water-focused 

organizations will continue to oversee water management issues

 Thereby, the operators will be more careful, will also depend on water management 

and environmental service companies for guidance

 The Niobrara now has significant momentum provided by shale play leaders like Noble, 

Anadarko, Bonanza Creek and a few others. There is also more support to 

development via new entries by companies like Shell, etc.

17
18

End of Presentation

Water Management for Shale Plays

 An Overview of the Niobrara Shale

________________________________________