The Denver-Julesburg (DJ) Basin, spanning Northern Colorado, Eastern Wyoming, Western Kansas, and parts of Nebraska, stretches from north to south, from north of Cheyenne, Wyoming, down to Colorado Springs. Its primary production field, the Wattenberg gas field, is located in Weld County and Northwestern Adams County in Northeast Colorado.

Oil and gas production in the D-J Basin traces back to a discovery in Boulder County, Colorado, in 1901, marking a long history of energy development in the area. The basin is highly productive, primarily due to its stacked plays, similar to those in other regions like the Anadarko Basin (with its SCOOP and STACK plays) and the Permian Basin. This geological feature is a key reason for the high productivity of wells in the DJ Basin.

Niobrara and Codell in the Denver-Julesburg

The DJ Basin and the Permian Basin are significant oil and gas-producing regions in the United States. Both areas are known for their prolific shale formations and utilization of advanced drilling techniques like hydraulic fracturing and horizontal drilling to extract hydrocarbons.

The production in D-J Basin mainly originates from formations created during the Cretaceous Period, approximately 145 to 66 million years ago. The primary reservoirs currently being exploited are the Niobrara and the Codell, their depths ranging from 3,000 to 14,000 feet, the Niobrara Formation being between 285 to 385 feet thick, and the Codell Formation ranging from 3 to 25 feet in thickness.

The Niobrara Formation is a chalk layer comprising two structural units: the Smoky Hill Chalk Member and the Fort Hays Limestone Member.

The Codell is a fine-grained sandstone with low permeability. It does not extend throughout the entire DJ Basin, as it thins out eastward, situated just below the Niobrara Formation and used for exploration and production of oil and gas in Weld County.

Hydrocarbons from both the Niobrara and Codell units are commingled in many producing wells, leading to the combined interval often being referred to as the Codell-Niobrara interval.

A notable feature of the Wattenberg field is its thermal maturity, indicating that it has undergone significant geological processing ('cooked' more), resulting in a prevalence of wet gas and higher Gas/Oil ratios (gas condensate).

Denver-Julesburg DJ Basin M&As

The DJ Basin in Colorado is a key location for many leading oil and gas companies, including both major players and smaller independents. Among the public companies with the largest presence in the basin are EOG Resources, Civitas, Chevron, and Occidental.

In recent years, the DJ Basin has been a hotspot for M&A:

• Occidental Petroleum Corporation's acquisition of Anadarko Petroleum in August 2019 for $38 billion, a deal that included taking on Anadarko's debt. This acquisition was one of the largest in the industry and significantly expanded Occidental's footprint in the region.
• Chevron Corporation's acquisition of Noble Energy, Inc. in 2020 through an all-stock deal valued at $5 billion. Noble Energy had a significant presence in the DJ Basin, enhancing Chevron's operations in the area.
• Chevron's acquisition of PDC Energy in August 2023, another all-stock transaction, this time valued at $7.6 billion, including debt. Through this deal, Chevron gained 275,000 net acres in the DJ Basin, adjacent to its existing operations in northeast Colorado, reinforcing its position in the basin.
• PDC Energy's acquisition of SRC Energy (formerly Synergy Resources) in an all-stock deal valued at about $1.7 billion. This merger expanded PDC Energy's footprint in the DJ Basin.
• The merger of Bonanza Creek Energy with Extraction Oil & Gas in 2021, which resulted in the creation of Civitas Resources, Inc. This merger established a leading presence in the DJ Basin with a combined enterprise value of around $2.6 billion.
• Civitas Resources' acquisition of Bison Oil & Gas II, a privately held operator in the DJ Basin, for approximately $346 million.
• Williams' acquisition of Cureton Front Range and the remaining 50% of Rocky Mountain Midstream Holdings from KKR in November 2023 for $1.3 billion.

2024 UPD: Prairie Operating operates in oil and gas exploration and production in Weld County, Colorado. They own around 45,000 acres over the Niobrara and Codell formations in the DJ Basin, with estimated reserves exceeding 5 billion barrels of oil equivalent. Their land includes an original 37,000 acres, an additional 5,500 acres from buying Nickel Road Operating (with 62 drilling spots, set to close in early 2024), and a new 1,280-acre area with eight drilling spots acquired in February 2024.

2022

In 2022, Chevron reported producing approximately 144,000 net oil-equivalent barrels per day from the DJ Basin. The company started a test project using Project Canary's TrustWell Certification program which aims to check and study the environmental and social impacts of certain wells and facilities at three sites in the Denver-Julesburg (DJ) Basin. As of March 2022, there were 15 active drilling rigs in the basin, with a total of 57 permits approved during the period.

In March, Civitas Resources became Colorado's first carbon-neutral oil & gas producer by acquiring Bison Oil & Gas II for $300 million in cash, adding 102 high-quality rural sites, including 38 fully permitted ones, to its portfolio.

In May, PDC Energy finished buying Great Western Petroleum for $1.3 billion its DJ Basin holdings to around 230,000 net acres across Adams, Larimer, and Weld counties in Colorado.

In June, DJ Homestead enlisted Meagher Energy Advisors to sell its key assets in the Denver-Julesburg Basin across Weld, Adams, and Larimer counties, Colorado. The sale included 38 operated and 121 non-operated wells, plus 2,721 leasehold acres and 156 mineral acres.

In the second half of 2022, the Denver-Julesburg Basin Overview showed that Own Resources Operating led with 3,679 wells. They were followed by OXY with 2,594 wells, PDC Energy with 2,146 wells, Chevron with 1,784 wells, and Crestone Peak with 1,204 wells. On average, each well produced 5,878 MCF of gas, 1,175 barrels of oil, and 1,762 barrels of oil equivalent (BOE). Regarding the status of the wells, there were 17,152 active wells, 1,418 shut-in wells, and 62 inactive or plugged and abandoned wells. The majority of the wells, at 92.1%, were active, while 7.6% were shut-in.

In December 2022, PDC Energy's Guanella CAP included 22 sites, around 33,000 net acres, and 450 wells in Weld County, Colorado, within the Denver-Julesburg (DJ) Basin.

At the end of 2022, Gungnir Resources sold its continuous acreage in the Codell/Niobrara Play of the northern Denver-Julesburg Basin, covering Laramie, Goshen, and Platte counties in Wyoming. The sale includes 136,622 contiguous rural acres and 43 operated drilling spacing units (DSUs) with 85 permits.

2023

The DJ Basin saw a steady rebound in oil production in 2023, with figures reaching 516 Mb/d in September. The pipelines serving the DJ Basin also carried crude oil from the Williston and Powder River basins, with flows reaching an all-time high of 114 Mb/d. The total oil volumes moved out of the DJ Basin amounted to 630 Mb/d in the same period. Despite a high level of pipeline egress with an overall utilization of 79%, two of the four main pipelines delivering barrels to the Cushing hub were nearing capacity, specifically the Saddlehorn Pipeline and Pony Express, both at approximately 86% utilization.

Chevron focused within the DJ Basin, particularly in the liquids-rich area within Weld County, where it has access to approximately 600,000 net acres. This expansion was notably through the acquisition of PDC Energy Inc., including an additional 275,000 net acres. Chevron estimated its production to reach approximately 400,000 barrels of oil equivalent per day following this acquisition. In 2022, before this expansion, Chevron produced approximately 144,000 net oil-equivalent barrels per day in the region.

Quantum Energy Partners formed Bison Oil & Gas IV with an investment of over $500 million to target oil and gas opportunities in the D-J Basin, Colorado, and Wyoming. Bison IV expanded its portfolio, acquiring more than 75,000 net acres and producing over 25,000 boe/d. For instance, Civitas Resources' DJ Basin production averaged 173 MBoe/d.

In December, The Williams Companies expanded its presence in the DJ Basin through two strategic acquisitions, positioning itself as the third-largest gatherer in the basin. The company completed the acquisition of Cureton Front Range, which includes over 260 miles of pipelines, two processing plants with a capacity of 109 million cubic feet per day, and 64,000 horsepower of compression.

For the DJ Basin in 2023, Occidental Petroleum's average annual sales volumes per day for crude oil were 79,247 barrels per day (bbls/d), a notable increase from the 2022 figure of 75,752 bbls/d. In terms of natural gas, the 2023 average was 302,928 million cubic feet per day (Mcf/d), compared to 308,161 Mcf/d in 2022. For natural gas liquids (NGLs), the daily average sales volume was 38,902 barrels per day (Bbls/d) in 2023, down from 42,923 Bbls/d in 2022. The total average sales volume of oil equivalent per day (Boe/d) in the DJ Basin for 2023 was 168,532 Boe/d, showing a decrease from the 2022 average of 170,035 Boe/d.

Infrastructure and Oil Exploration

Interesting fact: According to the Colorado Energy Office, 80% of the crude oil produced in Colorado comes from the DJ Basin.

In certain areas where natural gas prices are high, companies tend to focus on extracting oil, especially when oil prices are more favorable. This economic strategy is evident in the Wattenberg field, where geological analyses, like reflectance measurements, indicate that the rock is thermally mature, making it an ideal location for oil extraction.

The Denver-Julesburg (DJ) Basin has become highly productive due to the integration of two technologies: horizontal drilling and staged hydraulic fracturing (fracking). These methods have been around for some time but their combined use has significantly increased since the early 2000s. Horizontal drilling involves drilling down to the target formation and then horizontally for one to two miles. Geologists use geosteering, a process where they guide the drill based on geological data and seismic information, to ensure the drill stays within the desired formation. After drilling, a casing is installed to protect groundwater. This involves placing a pipe in the drill hole and cementing it to prevent any contamination of aquifers.

Let's imagine a company operating in the Denver-Julesburg (DJ) Basin, which we'll call 'X Energy'.

X Energy starts its process by drilling a well vertically until it reaches the target formation, which could be about 5,000 feet below the surface. This depth is strategically chosen based on comprehensive geological data, including logs from previous drillings and seismic information, to ensure they're tapping into the most productive areas.

Once the vertical drilling reaches the target depth, X Energy shifts its approach, navigating the drill horizontally for one to two miles. This is where the expertise of their geologists comes into play. Using geosteering technology, a geologist meticulously guides the drill from behind a computer screen. This method allows X Energy to maneuver the drill with precision, ensuring it stays within the oil-rich zones of the formation and maximizes resource extraction.

After successfully drilling the horizontal section, the next step involves securing the well. X Energy installs a series of casings, essentially steel pipes, inside the drilled hole. These casings are then cemented into place, creating a robust barrier between the well and the surrounding rock. The purpose of this is twofold: firstly, to ensure that the extracted hydrocarbons are safely transported to the surface, and secondly, to protect any aquifers or sources of drinking water located above the target formation. For instance, if a drinking water aquifer lies about 500 feet deep, the company ensures that the casings and cementing process provide multiple layers of protection, mitigating any risk of contamination.

X Energy takes well integrity seriously. Before moving on to the hydraulic fracturing stage, the company performs a series of tests, including the cement bond log, to verify the cement has properly bonded the casing to the rock. Pressure testing is also conducted to ensure there are no leaks, providing an additional layer of security for the groundwater.

Hydraulic fracturing, or fracking, is the final step in the extraction process. X Energy uses water at high pressure, combined with sand and other additives, to create fractures in the rock. These fractures allow the oil or gas to flow more freely into the well for extraction. Notably, many of the additives used are similar to substances found in everyday food products, like guar gum.

Moreover, X Energy adheres to strict transparency guidelines. In Colorado, fracking operations must disclose all chemicals used in the process on the FrackFocus database, accessible through the Colorado Oil and Gas Commission website.

Hydraulic Fracturing/Fracking in DJ Basin

1. Initially, operators focus on the end of the wellbore, specifically the section they intend to frack first. They apply hydraulic pressure to fracture this part of the earth, allowing them to extract the resources from the rock.
2. After fracturing the first section, they insert a temporary plug to seal it off. Then, they move back a bit to fracture the next section along the horizontal well. This process of fracking, plugging, and moving back is repeated through the entire horizontal length targeted for extraction.
3. Once all stages are fractured, the temporary plugs are drilled out. This is essential for the next step—cleaning the well.
4. After drilling out the plugs, the well starts to produce water and sand used in the fracking process. To clean this out and prevent damage to the permanent production facilities, temporary flowback equipment is used onsite. This equipment captures the initial high flow of water and sand, ensuring that only oil or gas reaches the permanent facilities.
5. As the flow rate stabilizes to levels the permanent facilities can handle, the well is switched from the temporary setup to the permanent production facilities. This means the well is now fully integrated into the pipeline and production systems.

DJ Basin Challenges

The DJ Basin has seen rapid growth as a key area for oil and gas production in recent years. However, this expansion has come with its challenges, especially regarding the capacity to transport what's produced. The main issue has been with natural gas: there are constraints in the pipelines and processing facilities due to increased line pressure. This situation creates a bottleneck, as higher resistance in the pipelines reduces the amount of gas and oil that can be produced from the wells.

To address these bottlenecks, midstream companies, which manage the infrastructure for gathering, including pipelines between well pads, gas processing plants, and compressor stations, have been expanding their networks. DCP Midstream Partners, for example, built new gas processing plants and other related infrastructure to relieve the high pipeline pressures.

The good news is that much of this new gas processing capacity was expected to be operational by 2019. This progress signals a light at the end of the tunnel, promising to alleviate constraints that limit production in parts of the field.

As a result of these constraints, companies have been drilling in areas with fewer capacity issues. This approach is often more economical and typically occurs in parts of the Basin with lower gas to oil ratios, where there's a higher focus on producing oil and less concern about handling gas. This situation is set to level the playing field a bit, allowing companies to base their drilling decisions more on the potential output of the wells.

Geologic Risk

In the DJ Basin, the geology is quite well understood, especially when it comes to exploring the edges of the basin, including the Niobrara and Codell formations. Unlike conventional oil and gas exploration, where drilling is based on geologists' hypotheses about the location of oil and gas, informed by seismic data and mapping of source rocks and migration paths, the situation in the DJ Basin is somewhat different.

Conventional exploration involves drilling to test these hypotheses, aiming to find oil and gas in commercial quantities. However, these conventional wells have a lower success rate, with only about one-third leading to commercial discoveries. Many wells end up being plugged and abandoned or turn out to be dry holes that don't produce enough oil and gas to justify further development.

Exploration in the DJ Basin, particularly in the Niobrara formation, is more focused on assessing whether hydrocarbons can be commercially produced from one area to another. In well-studied areas like the Wattenberg field, dry holes are rare, as long as nothing goes wrong during the drilling process. Issues might arise if the well is not accurately geosteered and misses the target formation. However, if the drilling is accurate, finding oil and gas is almost guaranteed; the main question is whether it can be produced economically. This approach to exploration in the DJ Basin is informed by extensive data and a solid understanding of the geological characteristics of the area.

Example: Once again X Energy (not a real company) plans to drill exploration wells to figure out the best spacing between them across different areas of the DJ Basin. In the core Wattenberg field, they're used to drilling around 24 horizontal wells in each section. This spacing works well there, but the geology might change in other areas, like the southern part of the field. They're checking if the same spacing can bring good results elsewhere or if adjustments are needed based on geological differences.

In short, while the Niobrara and Codell formations are profitable in parts of the DJ Basin, extracting oil and gas might not always be cost-effective due to varying oil and gas prices.

Conclusion

Similar to the Permian Basin, the shale revolution has led to significant advances in drilling techniques in the DJ Basin, thanks to technology that has transformed it into one of the top oil and gas-producing areas in the U.S. The use of hydraulic fracturing and horizontal drilling has unlocked huge amounts of oil and gas from shale formations like the Niobrara and Codell, greatly increasing production. This boom in production has also led to the development of necessary infrastructure, such as pipelines and processing facilities, making the DJ Basin a key player in the country's energy supply.

Despite changes in oil prices and the economy, the DJ Basin continues to attract major energy companies like Chevron, Occidental Petroleum, Williams, and Civitas. In D-J Basin, Prairie Operating is well-placed among big companies, it could be part of big deals like when Occidental bought Anadarko and Chevron bought Noble and PDC.