Companies drilling in Weld see stocks surge
The price of West Texas Intermediate, used as a benchmark for crude oil prices, often topped $100 per barrel during the past year as producers posted record oil production of 64.1 million barrels in 2013, a 30 percent increase from the 49.3 million barrels of oil in 2012.
The companies have drawn the attention of investors as oil production rises in the Wattenberg field, the majority of which spans Weld County, according to analysts. Forecasts of the top oil and gas producers in the county, such as Anadarko Petroleum Corp. (NYSE: APC) and Noble Energy Inc. (NYSE: NBL), also have excited investors.
Anadarko and Noble comprise about two thirds of the oil production in Northern Colorado, said Erika Coombs, energy analyst for Denver-based Bentek Energy. Coombs estimated that the Wattenberg produced an average 206,000 barrels of oil per day in May, and said she believes that figure will rise to 230,000 by the end of the summer. She estimated that oil production will reach 450,000 barrels per day by 2019.
Anadarko, which said in March it planned to operate 13 rigs in the Wattenberg and drill 360 wells this year, could see a 17 percent compound annual growth rate during the next five years in the Wattenberg, according to a note to investors by analyst Mark Hanson of Morningstar Inc.
The Wattenberg's productivity is no secret to investors, but Weld has gained new prominence with the success producers have seen from horizontal drilling in the northeast part of the county, said James Sullivan, senior analyst for Alembic Global Advisors in New York City.
“The extensions to the Wattenberg to the northeast in Weld County have been more successful than people were thinking it might be,” he said.
Investors also have enjoyed average drilling costs of $4 million to $5 million, significantly less than other shale plays, said Stewart Glickman, equity analyst for S&P Capital IQ, a part of McGraw Hill Financial (NYSE: MHFI).
Producers have improved their operations since the oil well called “Jake” was drilled by EOG Resources Inc. (NYSE: EOG) in 2009, the onset of Weld County's contemporary oil boom.
“The rates of return are great, the costs per well are low, the average drilling times are coming down,” Glickman said.
Companies' performance in Northern Colorado may have had some effect on share prices, but companies such as Anadarko have seen individual events rocket their stock. On April 3, Anadarko's share price surged 15 percent from $86.47 on April 2 to $99.02 on April 3 when the company announced a $5 billion settlement of a lawsuit related to pollution caused by spinoff Tronox Ltd.
“People were anticipating anywhere from $5 billion to $14 billion,” Glickman said. “That was a plus for the stock.”
Noble Energy Inc.'s (NYSE: NBL) stock has increased 19 percent to $70.08 in late May from $58.69 during the same period last year, while Halliburton Co. (NYSE: HAL) shares have risen 44 percent to $63.41 May 22 from $44.02 the same day last year. Glickman believes that investors have flocked to the stock believing that fracking prices will improve for oil field services companies.
“I think you're going to start to see prices start moving back in favor of the services companies when they've been going in the favor of operators in the last couple years,” he said.
Halliburton is said to perform most of the hydraulic fracturing in Northern Colorado.
“The DJ Basin is an important market for Halliburton, and we have a dominant market share position in this basin,” Halliburton spokeswoman Susie McMichael said. “As a result, if our customers are focused on increasing production in this area, then it would likely translate into more service work for us.”
However, it's difficult to link the company's stock price directly to regional activity because it operates in more than 80 countries, she said.
Despite higher stock prices, risks abound for the companies in Northern Colorado. The lack of oil pipeline capacity presents one risk, analysts say.
Other risks include potential additional flooding, Glickman said, after the deluge in September suspended production on nearly 2,700 wells. Any potential regulations that limit fracking or horizontal drilling also could challenge oil companies.
Any drop in oil prices also would pose a risk to producers in the region.
“The markets think the price of oil is going to go down,” Sullivan said. “That's the biggest risk.”
Steve Lynn can be reached at 970-232-3147, 303-630-1968 or firstname.lastname@example.org. Follow him on Twitter at @stevelynnBW.
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