Craig Southwestern Energy’s oil and gas play in Northwest Colorado got much bigger in July after the company entered an agreement to acquire an additional 74,000 net acres of mineral leases in the Niobrara shale formation for $31 million.
The company released its second-quarter earnings last week, highlighting the new acquisition in two separate transactions that are expected to close in the third quarter of 2014.
The new $31 million deal is in addition to the $183 million acquisition of 306,000 net acres of mineral leases that Southwestern purchased in March from Shell Oil.
Southwestern took interest in the Niobrara formation after Shell announced it would pull out of the area last August.
In total, Southwestern Energy is investing $208 million in Northwest Colorado, which includes the mineral lease acquisitions and the costs associated with drilling, according to the company’s second-quarter financials.
The company plans to drill five vertical exploratory wells — three in Moffat County and two in Routt County — potentially by year’s end.
Southwestern’s CEO Steve Mueller alluded that the company could drill as many as 10 exploratory wells: five in 2014 and the rest next year, according to the company’s second-quarter earnings call transcript.
“Part of it is drilling across a section and understanding the gas ratio and the liquids ratio and the quality of the liquids and trying to figure out where the better spots would be,” Mueller told analysts and investors in the earnings call. “We think ultimately, it’s going to take somewhere close to 10 wells to really get a point of where we understand enough to say go or no go.”
If the company finds rich oil and gas spots, it then will drill horizontal wells.
Last week, the company finished drilling the Welker well near Moffat County Road 30 west of Craig, hiring contract workers from Kawcak Inc. to help with the well.
In total, about 50 workers have passed through Craig, eating, shopping and lodging in Craig hotels while working on the Welker well, according to Southwestern officials.
The company also opened an office in Craig at 390 Yampa Ave. and a small one in Steamboat.
Although the company is eyeing more wells in the area, it could take some before oil and gas production becomes fruitful.
“Stay tuned, we’re excited about it,” said Christina Fowler, spokeswoman for Southwestern. “It’s going to take a little bit of time before we know what the long-term strategy is.”
Moffat and Routt county officials are interested in what might become of the energy company’s presence in Northwest Colorado.
“I think it’s great that Southwestern Energy is making that large of a commitment to our area. I hope it pays off for them and for us,” Moffat County Commissioner John Kinkaid said. “I hope they strike rich.”
In May, the Routt County Planning Commission unanimously approved to recommend a permit for Southwest Energy to drill a new oil well located off Routt County Road 80. The State Land Board north of Hayden controls that land.
On June 10, Routt County commissioners approved the permit.
“These vertical wells are for geological study. It’s simply to get a better understanding of the formation,” Fowler said.
Southwestern Energy is entering the Niobrara formation on the heels of four contentious oil and gas ballot initiatives — 88, 89, 121 and 137 — that were withdrawn earlier this week from potentially appearing on the November ballot.
U.S. Rep. Jared Polis, D-Boulder, dropped his two “anti-fracking” measures, 88 and 89. Initiative 88 would have required drilling rigs to be at least 2,000 feet from houses and schools, and 89 would have added an environmental bill of rights to the state constitution.
In return, 121 and 137 — seen as pro-oil and gas industry initiatives — also were withdrawn. Initiative 121 would have stopped cities that ban hydraulic fracturing from receiving Colorado severance taxes from oil and gas drilling.
Reach Noelle Leavitt Riley at 970-875-1790 or nriley@CraigDailyPress.com.