The Niobrara Shale has had growth in drilling during the past few years, but the play may simply be a rung below the Bakken, Eagle Ford and Permian.

Bob Brackett, senior analyst, Bernstein Research, said he has previously argued that E&P companies are like locusts, descending upon the best acreage first.

“We can also argue that E&P companies are pigs—sniffing out the most attractive truffles before exhausting the inventory and moving on,” he said. “In the case of the U.S., the best ‘hunting ground' for production growth has been Texas and North Dakota with Colorado and Wyoming lagging.”

Development in the Niobrara has focused on the Denver-Julesburg (D-J) Basin in Colorado and the Powder River Basin (PRB) in Wyoming.

The Niobrara has shown the ability to grow, but it won’t see Texas levels of production or Bakken rates of growth because it is held back by access, variability and economics, Brackett said.

Economics are driven by a combination of peak rate, liquids content, and decline curve.

A look at crude oil production in Colorado, Wyoming, North Dakota and Texas shows that growth in the Rockies has lagged behind North Dakota and Texas.

“This perhaps speaks to relatively unattractive economics. However, we do see significant inventory in the area if the economics can work,” Brackett said.

The Niobrara’s horizontal development has a strong inventory and should grow at single digits, Brackett said. It could still exceed 500,000 barrels of oil per day (bbl/d) and 1,200 million cubic feet per day of gas (MMcf/d) for 700,000 barrels of oil equivalent per day (boe/d). Currently, the shale produces volumes nearer to 300 Mbbl/d and 400 Mboe/d.

“We do not currently see the Niobrara as particularly constrained by inventory,” Brackett said. “Although not as expansive as the Permian Basin, we see ample room for continued drilling, particularly given operators' efforts to drill more wells per section.”

Brackett said that play-wide infill ability will tend toward an average play density of about 200 acres. However, Noble has said that 160-acre infill spacing is feasible after testing 50 wells and is evaluating lower spacing at 80 acres.

The Cores

Like other plays, at the end of March, the D-J Basin and Niobrara were slowing down. The basins were running 30 rigs, down 45% from 55 in 2014, according to the Baker Hughes Inc. (NYSE: BHI) rig count.

Activity is still likely in what Brackett identified as the Niobrara’s core counties. In Wyoming, they are Campbell, Converse and Laramie, and in Colorado, Weld County.

Overall, the counties in Wyoming offer better returns than those in Colorado, Brackett said.

“We have a preference for Wyoming counties which work below $80 WTI while Weld County, Colo., requires closer to $90 WTI,” he said. “It is less clear how much inventory and variability exists in Wyoming however.”

“Weld has inferior peak rates and EURs leading to less economic average drilling programs, admittedly at lower cost per well,” Brackett said.

Within Bernstein’s coverage, Chesapeake Energy (NYSE: CHK) and Noble Energy (NYSE: NBL) have the most exposure, with Chesapeake’s exposure superior, Brackett said.

Bernstein prefers Chesapeake and EOG Resources (NYSE: EOG) in the Niobrara, as well as Apache Corp. (NYSE: APC), which does not pay royalty fees and earns royalties from other operators in Weld County, Colo.

“EOG, CHK and DVN are top operators in the play while ECA and NBL in our coverage lag,” Brackett said.