Anadarko's Horizontal Wattenberg Wells are Moneymakers

There's an old saying in the oil and gas industry that goes something like this, "the best place to find oil is an oil field."  While it's exciting to see what the future holds for newer fields like the Utica and the Tuscaloosa Marine Shale, the Wattenberg field in the DJ Basin (Colorado) is showing us that these old oil fields that have been peppered with vertical wells still contain a lot of recoverable oil and natural gas.  For proof, look no further than Anadarko Petroleum (APC) whose horizontal wells have been delivering fantastic results.

These wells are fairly cheap at $4.5 million a pop and are consistent (see graphs below).  The average well produces 49 thousand barrels of oil (MBO) and 198 million cubic feet of natural gas (MMcf) during its first ten months of production.  Assuming $85 oil, $3 natural gas and a company reported 88% net revenue interest (NRI), these wells are netting more than $4.1 million in their first ten months.

Oil Produced to Date

Source: Colorado Oil and Gas Commission/The Energy Harbinger.
Sample Size: 72 wells.

The scatter-plot above shows oil recoveries from 72 of APC's horizontal wells in the Wattenberg oil field.  Most of these wells are between 5 and 15 months old and have produced between 20 and 60 MBO to date (COGCC's latest production month reported is December, 2012).  What's really interesting about this data is that while there's a few bigger wells and a few smaller wells, nearly every well should be economic and 75% of the wells produced more than 30 MBO in their first ten months.

I've calculated a break-even oil production of 60MBO (assuming no natural gas production) at a $4.5 million well cost.  While these wells are still young (notice none in my sample size have produced for more than 25 months) and no long-term data is available, these economics are competitive with any oil play I've seen.

Natural Gas Produced to Date

Source: Colorado Oil and Gas Commission/The Energy Harbinger.
Sample Size: 72 wells.

I think you have to put Anadarko's horizontal Wattenberg play in the upper echelon of oil and gas plays.  Not only is it producing a lot of hydrocarbons, but the wells are cheaper than in the Bakken or Eagle Ford and the company is netting a whopping 88% NRI from its wells.  It doesn't hurt that its working interest averages 96% in each well and the company estimates it has ~4k drill sites with ~300 wells planned for 2013.

I plan to take a look at Noble's (NBL) Wattenberg wells in fairly short order as they're the other major player in this field, but I expect the company's results to be a little shy of APC's but still strong.

As far as APC's stock goes, I wouldn't necessarily recommend buying it as it has skyrocketed over the past year (you could probably do much worse), but maybe start thinking about some of the smaller players in the field like Bill Barrett, Bonanza Creek and PDC.

By. Braden Holt