Quicksilver's Pirtlaw oil well on Wolf Mountain is seen Jan. 13 from the air. Of the three dark cylindrical storage tanks in the right of the frame, one is used for storing well fluids and the other two are devoted to storing oil, according to a company official. The pump jack at the well is not currently operating, according to the same source.

Photo by Tom Ross

Quicksilver's Pirtlaw oil well on Wolf Mountain is seen Jan. 13 from the air. Of the three dark cylindrical storage tanks in the right of the frame, one is used for storing well fluids and the other two are devoted to storing oil, according to a company official. The pump jack at the well is not currently operating, according to the same source.

Quicksilver finds oil in well on Wolf Mountain

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Past Event

Routt County Planning Commission meeting

  • Thursday, January 19, 2012, 6 p.m.
  • Routt County Courthouse, 522 Lincoln Ave., Steamboat Springs
  • Not available

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— The possibility that the Niobrara Shale lying more than a mile beneath Northwest Colorado will yield enough oil to be profitable seems more likely this week after top executives with Quicksilver Resources confirmed their first horizontal well on Wolf Mountain in Routt County has demonstrated it is capable of producing 500 barrels of oil per day.

“It’s very early but meaningful,” Quicksilver Vice President of Finance John E. Hinton said Wednesday.

The price of crude oil fell 12 cents Wednesday to $100.59 a barrel.

Quicksilver Senior Director of Governmental Affairs and Community Relations Stephen Lindsey said that during a visit to the well pad a few days ago, the pump jack on the Pirtlaw well on Wolf Mountain was not being operated, a sign it is not in full production. However, the well has given Quicksilver executives a sense of what might be to come.

Hinton confirmed the transcript of a conference call Quicksilver executives held with financial analysts tracking the oil industry earlier this month: They think the Thunderhead Project in Northwest Colorado has the potential to produce a half-billion barrels of oil.

“We’ve (leased) over 930 square miles. It has a thick Niobrara section with a large oil reserve target,” Quicksilver Chairman of the Board Thomas F. “Toby” Darden told analysts monitoring the conference call. “From our vertical testing across the block, we have determined that the entire section is oil charged. We think there’s an oil reserve target to Quicksilver’s acreage of around 500 million barrels of oil if we’re able to exploit it effectively.”

Hinton told the Steamboat Today on Wednesday that it’s premature to speculate on whether the estimated oil reserve of 500 million barrels will prove out.

“There’s a lot of work to be done to prove if that entire acreage will produce” to that level, he said.

Steamboat-based energy industry consultant John C. Lamb said Wednesday that the numbers discussed by Quicksilver suggest the Niobrara Shale belt could be productive.

“It isn’t necessarily an oil boom, but it’s certainly very positive for the future of the Niobrara in Northwest Colorado,” Lamb said.

He contrasted that the estimated reserve of 500 million barrels is substantially less than the 750 million barrels found in the vicinity of Rangely after World War II.

The Rangely field was drilled in an era when technology wasn’t as sophisticated as it is today, Lamb pointed out. The conference call unveils how Quicksilver engineers have done their homework on earlier efforts to extract oil from the ground beneath Routt County by studying production from 80 vintage wells.

Quicksilver’s research shows that more than 12 million barrels of oil have been recovered from older, vertical wells drilled between 1960 and 1980. Data about production in those old wells suggests to Quicksilver that they were inadequately stimulated, suggesting modern technology could produce greater yields. Five hundred barrels per day is five times what the older wells produced, Darden said.

“That’s what gave us confidence in the beginning to take this acreage, and it’s being borne out in our vertical tests and currently our new horizontal tests,” Darden told the analysts.

Reporting on the conference call, the Web page Investopedia reported that the Pirtlaw well cost about $8.5 million but that going forward, Quicksilver expects costs to drop to $6.5 million to $7 million per well.

The conference call also suggested that the owners of the mineral rights leased by Quicksilver could profit from the Niobrara. Darden told analysts that his company got in early in the Thunderhead Project and that it has a low-cost basis in the 210,000 acres under lease “with an average net revenue interest of 81 percent.”

Hinton confirmed that means in aggregate, mineral rights owners would realize 19 percent of the revenue from future wells.

Finally, Darden turned to an old expression to describe the quality of oil the Thunderhead Project is expected to yield.

“The crude is sweet,” he said, which means the oil has low sulfur content, making it more valuable. And the ratio of natural gas to liquid petroleum is very low at 2,000 to one.

With oil prices high and natural gas prices low, that’s the place to be for an energy exploration company.

To reach Tom Ross, call 970-871-4205 or email tross@SteamboatToday.com

Comments

sedgemo 2 years, 8 months ago

Do the mineral rights owners who leased to QS receive 19% of the gross revenue, or of the net revenue?

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Steve Lewis 2 years, 8 months ago

Tom, Thanks for the useful information. Could you write an opinion on this? I need some perspective, and would really like to hear yours.

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Rick Akin 2 years, 8 months ago

Royalty owners get their percentage of the gross production in every case I have ever seen. I bet these leases provide for 3/16 royalty, which is about the 19% and would be typical.

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Steve Lewis 2 years, 8 months ago

This community is completely on edge over this. That includes the folks at County govt.

The oil companies and state government are blaming this on "misinformation". The word is commonly used now in the recent statements I've read from the Colorado Attorney General's office, by David Neslin at the Colorado Oil and Gas Conservation Commission, and by the Colorado Oil and Gas Association, an industry trade group.

These representations from our state Attorney General and our state sanctioned commission are extremely disappointing. They are also wrong.

Our fear is a completely justifiable reaction to an approaching industry so powerful that it has made itself immune to our most basic and most fundamental protections - the Safe Drinking Water Act, the Clean Water Act and the Clean Air Act.

Our fear is completely justified when this powerful industry has bought the right to inject many thousands of gallons of "trade secret" fluids into the ground beneath us. Meanwhile oil companies in Britain are fracking with a safer fluid - only three chemicals – a polyacrylamide lubricant that is commonly found in cosmetics – hydrochloric acid and a biocide used to purify drinking water.

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sedgemo 2 years, 8 months ago

R. Akin... thanks for the info. If I figured this right, it means an average paycheck for the royalty owner in this case is about $95 a day, or $2850 a month, or $34,200 annually from a single well, assuming production at 500 barrels a day every day, and without deducting any costs. It's easy to see why people would do this in tight economic times.

The trouble comes in factoring actual costs... cleanup, hazardous waste, water usage, etc. The annual gross income based on numbers from this article indicate this well could produce around $180,000 (gross) worth of oil in a year.

What would one explosion or spill cost to clean up?

Lewi, it is likely the misinformation is being produced on all sides of this issue, as is typical.

The question now is how to proceed, the camel is in the tent (county wide) and won't be leaving anytime soon.

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wzdeer 2 years, 8 months ago

Yes Sedgemo, please check your math....your way off

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Phil Pagliaro 2 years, 8 months ago

I think sedgemo needs to go back and refigure. Would not want him to do my books!!!!

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Kevin Nerney 2 years, 8 months ago

Sedegemo---how about 16 million 456 thousand 16,456,000 at $90 a barrel. These guys wouldn't get out of bed for 180 K.

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sledneck 2 years, 8 months ago

And just think... when Iran goes nuclear it'll be $180/ barrel; at which time they will commence drilling ops right under the gondola!!!!

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kathy foos 2 years, 8 months ago

Its no big surprise that there is oil.It is the hydro gas fracturing that is in question,is that the "stimulus "that is needed to get the oil?Our county does not want to gamble with that fracking process,given the pure water here and all that is at stake with cancer potential,property value loss,tourism ,and the fact that it can take billions of gallons of water to frack just one well.The clean up issues are not being addressed in case of explosions or spills and who will pay back the losses if incurred?Will Routt County end up with a class action suit like the one being fought by the people in Garfield County at this time?A firm that represented the 911 victims and filed a lawsuit this summer for damages to the air land and water in the Rifle area,maybe they can help us out to extract monetary damages from those who would pollute with no care.The Clean Air and Water Act is going back into action in February and hopefully will make this fracking process safer for everything concerned.Its about all the hope the public has to control damages.We may not be able to stop the oil wells,but that has never been the issue,it is the fracturing that is harmful as proven in Wyoming by the EPA recently.Earthquakes have been proven to be caused in Ohio from the hydro gas fracturing being done there.It's a gamble with everything and not worth it in my opinion.If this goes through,I recommend air monitoring in many locations,as they did in Rifle .The recourse for damages will be civil suit for , seems like that could be very expensive in such a costly real estate area ,but it will all be accounted for "Quicksilver".You dirty it up you pay.Have the normal wells if you must, but no fracking and if there is any problems the public does have the right to extract damages from those who bring on the pollution to our presence.After the fact,would be better that the nature and pure waters stay that way right now.Quicksilver you know this is a controversial process and you don't care what we think.I don't care what you think in turn.Better to tread carefully here in Routt County.We have a clue and you can't just buffalo your way through as that other company in Rifle did,alot of other communitys are ruined by accepting" the fracking way".Enough is enough.

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sedgemo 2 years, 8 months ago

Okay all, I am not an accountant, thank Gawd. I was dropping too many zeros trying to do it shorthand. Here's another try to get an idea of what sorts of dollars are in "play" here, which I wish had been provided in the original article.

500 barrels a day at $100 per barrel = $50k per day. 30 days x $50 k = $1,500,000 a month. 12 months x $1,5000,000 = $18,000,000 annual gross.

19% of that is $3,420,000 in annual royalties from one well.

Thanks Kevin, I thought the $180k was surprisingly small, my bad, but had to get out the door. Leaving now, tail between my legs...

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Jeff_Kibler 2 years, 8 months ago

No worries, Sedge. You done good on the followup exam. All they taught about decimal points and orders of magnitude left me quite cornfused.

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sedgemo 2 years, 8 months ago

Thanks, JK! Now if I only had some mineral rights to sell...

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sledneck 2 years, 8 months ago

Kathy, For Gods sake; spaces and paragraphs, I beg of you. Please take a few moments away from the oil and gas debate and hone some basic punctuation skills.

Never mind my personal mind-numbing attempts to read your chicken-scratch. Think of it this way: Do you really want to convince people that your point is well founded? How on earth can you do so when they couldn't possibly follow your train of thought due to the abysmal nature of its display?

If your entire life is as scrambled as your literary output it is little wonder you come across as exasperated.

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