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Crestone Peak looks to triple DJ Basin assets following acquisition

Highlights

Company buying ConocoPhillips Colorado assets

Acreage is located outside Weld County

Denver — Crestone Peak Resources has agreed to pay ConocoPhillips nearly $400 million for its Colorado assets, nearly tripling its Denver-Julesburg acreage, as the company tacks on nearly 100,000 acres located in Adams and Arapahoe counties.

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Crestone Peak struck a deal to buy 97,000 acres of oil and gas lease rights in Adams and Arapahoe counties and in the city of Aurora, nearly tripling the company's size in the southern DJ Basin, for approximately $380 million. The deal is expected to close by the end of the month.

An annual earnings report for 2019 filed by ConocoPhillips revealed the deal's value. Some "customary adjustments" are possible before the final figure is settled, the company noted.

The sale covers the entirety of ConocoPhillips holdings in the Niobrara shale play in northeast Colorado. The Niobrara is the primary geological formation targeted in the Denver-Julesburg Basin.

The acreage also includes mineral rights acreage in the Lowry Range, a former military bombing range, and drillings sites within Aurora city limits allowing for as many as 310 wells. The transaction encompasses some acreage in northern Douglas and Elbert counties as well.

Unlike many operators in the DJ Basin, Crestone Peak has primarily targeted suburban areas north of Denver, such as Broomfield, Lafayette, Erie and Frederick rather than Weld County, a slightly more rural location, which dominates production in the basin.

For example, Weld County produces more than 2 Bcf/d of gas and nearly 600,000 b/d of crude, according to S&P Global Platts Analytics. In comparison, Adams and Arapahoe counties combine to produce 31 MMcf/d, according to the latest data from the Colorado Oil and Gas Conservation Commission.

Despite a much lower number of wells drilled and completed, average wells in Adams and Arapahoe counties generate oil and gas initial production rates on par or stronger than wells in Weld County, according to Platts Analytics.

However, operators also sometimes face tougher local opposition to drilling outside of Weld County.

After the Colorado Legislature passed Senate Bill 181 last year, which gave counties and municipalities more authority in approving drilling locations, Adams County was one of the first to bolster regulations. In September, the county created more stringent permit applications for drilling within 1,000 feet of a home or school. State law requires a special permission to drill within 500 feet of a home and 1,000 feet of a school.

Meanwhile, Boulder County, Berthoud, Broomfield, Erie, Lafayette, Longmont, Superior and Timnath have all passed drilling moratoriums as they draft new or updated drilling regulations. However, most of those timeouts are set to expire this year.

Also, due to a court ruling, counties and municipalities are not allowed to ban drilling indefinitely. The 2016 Colorado Supreme Court decision that halted local bans found the state had an overriding interest in oil and gas development.

Still, the decision is not preventing local governments from pursuing tighter regulations as the city of Broomfield is currently mulling 2,000 feet drilling setbacks from homes and schools.

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