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Could DJ Basin Niobrara Drive Rockies Gas Out of Decline?

Rockies gas production has been in overall decline since operators discovered the Haynesville & Marcellus Shales which have driven down North American natural gas prices. However, the shale boom has a champion in the Rockies in the Niobrara shale. Industry activity in the DJ basin has been on an upward trajectory over the last several years.  June 2014 shows a record 136 horizontal wells according to data provided by Datawright RigData and shown in the chart below.

The increase in activity has prompted producers & midstream companies to invest in new natural gas processing, pipeline, and rail infrastructure. Natural gas processing infrastructure has been a critical component for establishing continued growth in the basin as flaring regulations are much stricter than in North Dakota.  Below is a map highlighting current and planned processing facilities.

BTU Analytics estimates that natural gas processing plant infrastructure is expected to increase from ~0.9 Bcf/d in the beginning of 2014 to over 1.8 Bcf/d by the end of 2018 as DCP Midstream & Anadarko Petroleum add over 0.8 Bcf/d of new capacity between them.  These capacity additions couldn’t come soon enough for DJ producers who have been stretching the historical capacity to the limits over the last several years.

The BTU Analytics forecast above assumed operators continue to drill ~130 horizontal wells per month in the DJ basin. At the current pace of drilling,  processing infrastructure manages to keep pace over the next 5-years but by 2018 could becoming fully utilized requiring additional infrastructure. Operators though are intending to increase the pace of drilling in the basin. Noble Energy, the 2nd most active driller in the basin, intends to increase from 258 horizontal wells in 2013 to nearly 600 wells/year in 2018. If industry follows Noble higher, can DJ basin infrastructure keep pace?

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Anthony (Tony) Scott has built an in depth understanding of the North American energy market by providing investment advisory services and leading teams of analysts focused on the North American energy complex. Mr. Scott has conducted hundreds of consulting engagements assisting producers, marketers, midstream, refiners and private equity understand how rapidly changing natural gas, natural gas liquids, and crude oil markets in North America would impact their assets.

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