Piceance Basin - An Overview (excerpt from Oil and Gas Investor August 2005)

The 6,000-square-mile, gas-rich Piceance Basin straddles the Colorado River and Interstate 70 in Garfield and Mesa counties and extends northward into Rio Blanco County and south into Gunnison and Delta counties.

Essentially a huge fluvial system that contains a large, vertically stacked sequence of sands and shales that were deposited by meandering river systems during the Cretaceous age some 70 million years ago, the Piceance is a basin-centered gas trap that may contain as much as 200- to 300 plus trillion cubic feet (Tcf) of gas resource in place.

Operators that have flocked to the Piceance in recent years are hoping to recover 60% to 80% of that estimated potential, mainly from the 1,700- to 2,400- foot-thick, gas-bearing sequence in the Williams Fork section of the Mesaverde formation; the Williams Fork typically occurs at depths ranging from 4,500 to 8,500 feet in the basin.

Currently, Mesaverde drilling activity in the Piceance is principally along a west-to-east fairway in the Grand Valley, Parachute, Rulison and Mamm Creek fields where the Williams Fork and lower Rollins, Cozzette and Corcoran sections of the Mesaverde lend themselves to drilling wells on 10-acre subsurface spacing.

“The risk in this play isn’t drilling a dry hole; the risk is all technical,” says one geologist. “Very simply, we have to pay attention to drilling and completing our wells properly, and the better we get at that, the better our economics become.”

At present, drilling multiple directional wells from single pads and crafting more advanced completion technologies are allowing operators like EnCana and Williams to achieve average per-well recoveries of 1.2- to 1.4 billion cubic feet (Bcf). However, this is no longer a play for such large independents and industry giants like ExxonMobil and Chevron. Today, the basin is witnessing the entry of smaller operators like Bill Barrett Corp. and privately held Laramie Energy. In addition, XTO Energy this July announced it’s entering the Piceance through a partnering agreement with ExxonMobil. All these industry players recognize one simple fact: the Piceance—in terms of gas-resource-potential—may well be the place to drill in the Rockies for the next 10 years.

EnCana Oil & Gas (USA) Inc., the Denver-based arm of Calgary’s publicly held EnCana Corp., entered Colorado’s Piceance Basin in February 2001 when it acquired Ballard Petroleum. Through that purchase, it obtained some 100,000 net acres, estimated natural gas reserves of 130 Bcf and daily gas output of 21 million cubic feet from about 130 wells producing primarily at Mamm Creek.

After subsequent acquisitions, including the $2.7- billion buy of Tom Brown Inc. in May 2004, the company today holds some 1 million net acres in the Piceance, of which 795,000 are undeveloped. Daily gas production, meanwhile, has ramped up to 320 million cubic feet from about 2,500 wells; proved reserves, to 1.6 trillion cubic feet equivalent.

This may sound like a lot of growth, but for this operator it’s just the opening round in unlocking the huge potential of the Piceance.

“We and others believe there’s more than 300 Tcf of gas resource in place in the Piceance, some 90 Tcf of that beneath our own holdings in the basin,” says Roger Biemans, president of EnCana Oil & Gas (USA). “It’s our hope to ultimately recover between 60% and 70% of that resource potential.”

Primarily engaged in the finding, production, gathering, processing and transportation of natural gas, Tulsa-based publicly held The Williams Cos. got into the Piceance Basin in a big way in August 2001 with its multi-billion-dollar purchase of Barrett Resources.

That acquisition gave the company daily gas production of about 150 million cubic feet from several hundred Piceance wells, booked reserves of a little more than 1 Tcf and 134,000 net acres, primarily in the Grand Valley, Parachute and Rulison fields.

Since then, Williams has drilled some 700 wells in the basin, boosting daily gas output there to 370 million cubic feet. Its booked reserves in the Piceance, meanwhile, have risen to 1.8 Tcf, which represents 61% of the company’s total year-end 2004 domestic reserves of 3 Tcf. What’s more, the company has in the Piceance more than 250 miles of gas-gathering lines and four gas-processing plants.

“This is clearly a very prolific gas basin, where it’s estimated there’s 100 Bcf of natural gas in place per square mile. Using that number, one can easily arrive at more than 100 Tcf of gas-resource potential for the basin’s roughly 1.4 million acres that are deep enough to be productive,” says Joe Jaggers, Williams’ vice president, exploration and production, Denver region.

He contends that Williams has a long future in the Piceance, with more than 3,000 locations to drill in the Grand Valley, Parachute and Rulison fields. In fact, with 15 rigs running at any one time, and one rig drilling 20 to 25 wells per year, it probably has a 10 year drilling inventory ahead of it—“and this doesn’t include added opportunities to the north, at our Trail Ridge, Red Point and Ryan Gulch prospects.”

This year, the operator plans to spend around $400 million to drill 300 Piceance wells, up from about 200 wells last year. In 2006 and 2007, its drilling pace in the basin will step up to 450 wells and 500 wells, respectively. Williams is primarily targeting the Williams Fork section of the Mesaverde formation throughout the basin. The company’s success rate? That’s one of the beauties of drilling in the Piceance, Jaggers chuckles.

“In all the time I’ve been here, helping to drill more than 1,000 wells, we’ve never encountered a dry hole. This is a play that’s repeatable, that gives an operator the opportunity to figure what works best—from an efficiency and technology standpoint—then apply that knowledge on a large scale, drilling hundreds of wells per year.” Indeed, attention to efficiencies has helped Williams during the past three years hold drilling and completion costs in the Piceance relatively flat at around $1.1 million per well despite rising oil-service costs—and average finding and development (F&D) costs to around 95 cents per thousand cubic feet (Mcf).

On the well-completion side, the company, as other operators, is using slick-water fluids, rather than polymer gels in its hydraulic fracs, which permit higher flow-back rates and higher recoveries from treated reservoirs. At the same time, it’s using flow-through plugs above each treated interval in its multi-stage fracs, allowing the treated interval in a well to flow back the same day.