Expect a big uptick in the liquids-rich Niobrara play, says The Unconventional Drilling Report. By 4Q 2013, Noble is likely to have 10 Niobrara horizontal rigs active in the DJ Basin’s Wattenberg field vs. 5 today, and Anadarko expects to have 7 Niobrara horizontal rigs running in the field by yearend 2012 vs. 4 at present. Only one Niobrara rig is active in Wyoming’s Powder River Basin, in Goshen County, although Niobrara activity has also occurred in Laramie and Platte counties. About 200 permits have been issued in the three Wyoming counties. Anadarko will probe Niobrara potential in the DJ outside Wattenberg and in the PRB, and Noble will target Niobrara pay in southeastern Wyoming. Chesapeake will jump its rig count in the two basins from 10 to 20 by yearend 2012. Next year will prove the tipping point on whether the Niobrara has Eagle Ford breakout potential. The Niobrara has been slow to firm up in Wyoming, where the geology is more complex. But, overall, healthy growth is likely in the Niobrara rig count over the next several years.

The surge in oil drilling shows no sign of letting up. For the foreseeable future, there are ample economically viable opportunities for liquids drilling, according to The Land Rig Newsletter’s Biweekly Report. Even as sizzling plays such as the Bakken and Eagle Ford still have a lot of room to run, new liquids plays are emerging. Such new plays can be transformational. For decades North Dakota’s rig count barely registered. Thanks to the Bakken, the state now accounts for almost 10% of the nation’s rig count and has perhaps the strongest economy. The shift from gas to liquids drilling has been just as seismic. Looking at oil rig vs. gas rig data for 3Q 2010 vs. 3Q 2011 (July-August), the exchange of respective market shares is uncannily even. The gas rig share of the total count fell from 56.3% to 43.6%, while the oil rig share of the total count jumped from 43.7% to 56.4%. YOY, unconventional oil rigs have accounted for about 9 of the nearly 13 percentage point gain in the overall oil rig count.

The Land Rig Newsletter team acknowledged the first birthday of The Unconventional Drilling Report by comparing the July 14, 2011, issue with the first UDR they published on July 15, 2010. Among the comps:

 

The summary rig counts for the shale, tight sands, and coalbed methane plays were little changed from a year ago at this time. But some of the individual plays have changed dramatically:  Haynesville down by 59, Eagle Ford up by 104, Barnett down by 28, and the liquids-rich DJ Basin more than doubled while the other three, more gas-prone, tight sands plays all dropped sharply. Oil-directed rigs in the shales and tight sands were up by 88; gas rigs were down by 64.
Rigs drilling horizontal wells jumped by 72, while vertical rigs fell by more than half.

 

What will the UDR metrics will look like a year from now? First, there will be a very big increase in summary rig counts—starting with the July 28 issue, when the team rolls out data for a large number of new plays—all liquids-focused.

Last year Chesapeake CEO Aubrey McClendon suggested that there were no more “major” shale discoveries to be made in the U.S.  Some may interpret that as an imminent swan song for the resource plays that have transformed the nation’s energy scene. However, The Land Rig Newsletter team contends that there are a lot of other tight rock resource plays emerging that in the aggregate could amount to something pretty major.

 

In the June 2 Unconventional Drilling Report, the LRNL team posits that liquids-focused tight rock resource plays will continue to proliferate in the most venerable of oil arenas, e.g. Oklahoma and Texas, even if there are no more “major” plays on the order of the Eagle Ford to be confirmed. A flurry of mergers, acquisitions, and joint ventures will continue this year, spurring a fresh wave of drilling in these “lesser” liquids plays that will extend well into 2012—assuming oil prices hold up. But unconventional rig count gains will be reined in by softness in gas shale tallies that will probably persist through next year.

Corporate debt markets have been an attractive source of funding for U.S. E&P companies in the current era of easy money. Interest rates are at or near record lows for high-grade and high-yield companies alike, resulting in a number of E&P companies tapping these markets in recent months. However, the current environment of easy money could be coming to a close. Despite this, the outlook for drilling remains generally positive, and particularly so for companies in unconventional resource plays such as the Bakken and Eagle Ford, according to the latest issue of The Land Rig Newsletter’s Unconventional Drilling Report.

 

Companies have upsized debt offerings in recent weeks. Recent examples include Concho, which increased its offering from $400 million to $600 million, and Brigham Exploration, which increased its debt offering from $250 million to $300 million. Debt financing is allowing companies to add rigs. One example is Brigham. The company recently announced plans to add a tenth rig to its Williston program by July and plans to add another 2 rigs to the program in early 2012.

On the surface, drilling in the leading resource plays has all the markings of having entered a lull period. The unconventional rig count has been relatively unchanged for three consecutive quarters, and utilization has been fairly stable near 80% since early February. However, there are serious riptides underneath this relative calm, The Land Rig Newsletter team warns in the latest issue of The Unconventional Drilling Report.

 

The strongest Q1 currents were felt in the Eagle Ford, where the rig count surged 25% vs. Q4, and the Bakken, where the count was 15% higher. The Barnett, down 12%, and the Haynesville, down 7.5%, provided countervailing currents. Rig markets are likely to remain tight in the Eagle Ford, Bakken, and DJ basins throughout Q2. More generally, the LRNL team expects growth in oil-directed drilling to be in the double-digits in Q2 as growth in liquids-focused plays expands. Also, the LRNL team expects rig counts in dry gas areas, such as the Haynesville and the northeast window of the Marcellus, to extend recent declines during the quarter.