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Extraction in the News

More oil and gas development headed for metro Denver’s east side.

Cathy Proctor
Denver Business Journal
December 27, 2017

The eastern flank of Denver and Aurora, part of the Denver-Julesburg Basin but long a sleepy corner of Colorado’s oil and gas sector, is jolting to life.

And 2018 will likely be a more active time for the area — which includes the eastern side of Aurora as well as unincorporated Adams and Arapahoe counties — compared to years past.

That’s according to plans announced by two major oil and gas companies, Denver’s Extraction Oil & Gas Inc. (NASDAQ: XOG) and Houston-based international energy giant ConocoPhillips (NYSE: COP).

The east side of Denver’s metro area has been drilled in decades past.

And it’s rich in potential, not only for oil and gas companies that have spent millions of dollars assembling thousands of acres of mineral rights, but also for developers eying swaths of land for new homes and neighborhoods.

Representatives of energy companies in the area told the Denver Business Journal they want to work with developers in siting new wells and communities.

But overlapping interests highlight the potential for a new series of metro-area clashes between oil and gas production and local residents and officials — similar to the fights that have roiled communities north of Denver.

Outlines of a political fight are already in view, after two groups active in the oil and gas arena last fall poured thousands of dollars into local Aurora city council races.

Conservation Colorado, the state’s biggest environmental advocacy group, invested more than $11,000 in support of two Aurora city council candidates — Nicole Emily Johnston and Crystal Murillo — according to campaign finance records. Both women won their respective races to the 10-member city council in November.

It was the first time Conservation Colorado backed city-level candidates. The group in the past has supported candidates for governor, the state legislature and county commission.

“We got involved for several reasons,” the group’s deputy director, Jessica Goad, told the Denver Business Journal.

She cited the need for more multi-modal transportation in Aurora, the state’s third-biggest city, “environmental justice” issues and future oil and gas development.

“Oil and gas drilling is in Aurora and a lot of planning decisions get made at the local level,” Goad said. “We wanted to have a city council that may influence that. I think we’re going to continue to see more oil and gas and communities coming together in a way that may clash in the future, just as we have in the north I-25 corridor.”

Vital for Colorado, a statewide coalition of businesses and individuals that advocates for the oil and gas industry, spent $125,000 in support of five candidates, according to city campaign records. Two of those candidates won their races, David Gruber and Marsha Berzins.

Rich Coolidge, a spokesman for Vital for Colorado, told the DBJ that the group got involved because it “saw a divide among many Aurora candidates between pro-business candidates and those looking to stifle economic opportunities.”

There’s no question that oil and gas development is looming in the area — both inside Aurora’s city boundaries as well as across the city line in Adams and Arapahoe counties.

Aurora’s map of approved permits for oil and gas-related activity in the city between 2012 and Dec. 20, 2017 showed 24 red dots.

Six additional locations, marked by blue dots on the map, are under review by city staff.

The city didn’t see any applications in the early part of 2017, according to officials.

“But we have definitely experienced a recent uptick in permit submittals, and we expect that to continue as long as the price of oil remains where it is or increases,” city spokeswoman Julie Patterson said.

Executives with ConocoPhillips, the Houston-based international oil and gas company, in November told analysts the company will step up activity in Colorado in 2018. ConocoPhillips leased mineral rights under the old Lowry Range east of Aurora in 2012 from the State Land Board, and has expanded its holdings since then.

“ConocoPhillips holds approximately 100,000 net acres in the Niobrara, located in the southern Denver-Julesburg Basin,” ConocoPhillips spokeswoman Davy Kong said in an email to the DBJ.

“With nearly 45 horizontal appraisal wells drilled, our assets in the Niobrara show great promise. We’re planning a more active program in 2018,” she said.

Company executives told analysts in November they plan to operate a drilling rig in the area, which it calls its Niobrara play, during 2018.

Al Hirshberg, ConocoPhillips executive vice president for production, drilling and projects, called two company focus areas, the Montney, in Canada’s British Columbia, and the company’s Niobrara play in Colorado “relatively immature and in the appraisal phase, but they do show great promise.”

Matt Owens, president and co-founder of Denver’s Extraction Oil & Gas, recently told the Denver Business Journal that he’s liked the part of the DJ Basin that’s east of metro Denver “since ConocoPhillips came in.”

“The wells they drilled there were good,” Owens said.

Extraction in November announced it expects to spend about $450 million to acquire roughly 60,000 net acres of mineral rights. When the acquisitions are final, the company will have about a 77 percent working interest in the area it’s dubbed the Hawkeye.

Extraction purchased some of mineral rights from Bison Oil & Gas, a private Denver company that built up a position on the east side in the last few years and said it retains some mineral and surface rights in the area.

Extraction said in November it had more than 100 drilling permits for the Hawkeye area and another 110 more under review.

A map of Extraction’s Hawkeye mineral rights, part of company’s November presentation, show holdings in unincorporated parts of three counties: Adams, Arapahoe and Elbert. And the shaded areas also appear to overlap with Aurora’s maps of its city boundaries, particularly the area south of Denver International Airport.

Owens said Extraction may drill another test well in the Hawkeye area in 2018. But otherwise, Extraction’s immediate efforts for the area will focus on planning, permitting and ensuring there’s adequate pipeline capacity to move the oil and gas that’s produced to market, he said.

The Hawkeye area is different for Extraction, which has focused on drilling in and around towns north of Denver. After years of work with residents and officials in Broomfield, Extraction in October landed the city council’s approval of an agreement to drill 84 wells in the jurisdiction.

Extraction executives see the Hawkeye area, which the company describes as more rural than urban, as an opportunity to drill wells before neighborhoods are built.

“We have an opportunity now to work with developers to pick out pads before they know what their development will look like,” Owens told the DBJ.

Extraction said in November that more than 30 wells had been drilled in the area in and around its Hawkeye play, adding that many of those wells “exhibited some of the highest oil production rates in the DJ Basin.”

And the company said in November it believes the Hawkeye area is “comparable” to the heart of the Wattenberg field that lies at the core of the DJ Basin.

“Extraction believes this [Hawkeye] acreage is very comparable with core Wattenberg in terms of Niobrara thickness and expects to develop 12-16 wells per section,” the announcement said.

Owens said in the November announcement that Hawkeye represented “a large, high-quality, majority operated drilling inventory of over 1,000 gross locations” that could handle horizontal wells that stretched an average of 8,800 feet.

The rock in the area is prone to produce oil, Owens said in the announcement, adding that “we expect it to be a significant contributor to Extraction’s future growth.”