Extraction (XOG) IPO Puts DJ Basin Back in the Limelight

November 9th, 2016 |

The DJ Basin is a smaller producing region that often gets overlooked.  However, with Extraction Oil & Gas’ (NASDAQ: XOG) initial public offering, the DJ Basin is back in the limelight.

Though small, the DJ Basin is a key asset not only for pure play operators like Synergy (NYSE MKT: SYRG), Bonanza Creek (NYSE: BCEI), but also to larger portfolio players like Noble (NYSE: NBL) and Anadarko (NYSE: APC) who hold acreage in areas like the Eagle Ford and Permian that compete for capital against the DJ Basin.

Its competitiveness against other US shale plays led it to continue to be an oil growth basin for many players even during the price downturn.  Pure play operators (indicated in light blue) like Synergy and Extraction grew crude production 48% and 26% between the beginning and end of 2015, respectively.   Diversified operators (indicated dark blue) grew less year over year, but also had investments outside of the basin to maintain.

DJ Basin Production Growth 2015

Looking at the map from our E&P Positioning Report below, which displays wellhead breakeven prices based on current well cost estimates, shows that there are significant swaths of acreage that are economic below $40/Bbl wellhead supporting both historical and future investment in the DJ Basin.  Because the DJ is much smaller and held by a more concentrated group of producers, it often gets overlooked despite having areas that are competitive with plays in the Permian and Eagle Ford.

DJ Basin Wellhead Breakeven EconomicsIn fact, Extraction holds acreage that is within the core of the DJ Basin, near peers who have had extremely favorable results, and has seen success itself.  Well-level data from 2013 through 2015 shows that Extraction consistently beat other top operators on a 30-day average oil IP rate (B/d) basis.  As one of the largest drivers of economics, strong oil IP rates lay the first part of a solid foundation for favorable economics.


DJ Basin Oil IP Rates

For in-depth analysis of DJ Basin economics, differentials, and its players like Extraction Oil & Gas, please see BTU Analytics’ E&P Positioning Report.

 

Author: Erika Coombs

Erika Coombs is Manager of Consulting Services at BTU Analytics. She leads the team to deliver customized energy-market analysis and provides BTU Analytics’ customers with critical information for a variety of energy markets including oil, gas, and NGLs from wellhead to downstream markets. She also leads research on upstream analysis, crude oil midstream infrastructure, breakeven economics, and commodity pricing dynamics for several BTU Analytics’ reports. She holds a M.S. in Mineral and Energy Economics from the Colorado School of Mines.