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Feature: Powder River Basin seems poised for an oil and gas comeback despite some drawbacks

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Feature: Powder River Basin seems poised for an oil and gas comeback despite some drawbacks


Oil output seen rising just 57% in five years: Platts

Returns not as high as Permian, Eagle Ford, Bakken

But gives optionality; has takeaway, strong well rates

Houston — Wyoming's Powder River Basin appears on the verge of a comeback as companies unveil plans to use horizontal drilling to further develop the play's oil and gas resources.

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Even as some of industry's biggest operators have shown interest in the basin recently, some of its key financial metrics appear lower on average than other areas, and experts project only a modest rise in oil production over the next five years.

So what is the draw for some of industry's biggest independent producers?

For one thing, the PRB offers "optionality" at a time when the giant Permian Basin in West Texas and New Mexico is struggling to provide enough output takeaway capacity, S&P Global Platts Analytics analyst Matt Andre said.

"While some of the other major plays are dealing with constraints and rising differentials, the [PRB] has benefited from favorable well economics along with the promise of expanding infrastructure (in the future)," Andre said.

"It's not quite the Permian, but you don't run into the oil price differential issues and land costs of the Permian, either," he said.

Also, the PRB has a high oil production mix, with companies citing 60%-80%, strong initial well production rates and low acreage costs, he added. For example, Anadarko Petroleum recently said it has established a core PRB position of 300,000 gross acres at $2,500/acre.

In addition, some producers "actually compare the [PRB's] economics to the Permian" which are at or near the top of US plays, Andre said. "Realistically that is probably only the top wells, but it is still interesting."


The PRB produced oil and gas conventionally for years. After industry began applying unconventional production techniques to oil basins early this decade, operators began testing PRB's multistacked horizons when oil was still in the $90s-$100s/b. After a promising start, the play lost steam as oil prices fell to half those levels in early 2015.

These days, the PRB has resurfaced following three years of low crude prices and modest activity, and oil production is growing steadily if modestly.

Basin oil output now is 123,000 b/d, up from 83,000 b/d at end-2016 and early 2017, according to S&P Global Platts Analytics. The play began 2018 producing around 108,000 b/d.

"The Powder River Basin had its coming-out party in Q2 2018 with EOG Resources, ... Anadarko Petroleum and Chesapeake Energy all unveiling a renewed interest in the play," Jefferies analyst Mark Lear said in a recent investor note.

Even so, the basin's financial metrics are lower than some other proven plays. According to Platts' Well Economics Analyzer, the PRB's breakeven oil price is $45.92/b compared to a roughly $31/b average in the Permian and $34.52/b in the Eagle Ford Shale of South Texas.

PRB internal return rates are lower too, averaging around 20% compared to 41%-42% for the Permian, 46% for the Eagle Ford and 49% for the Bakken Shale in North Dakota and Montana, according to Platts.

But PRB oil production is not expected to rise spectacularly: Platts projects 193,000 b/d by the end of 2023, up 57% from the current level. That figure assumes current drilling activity holds constant, which Platts calls a likely "conservative" estimate when compared to the growth trend this year.

The PRB's core is sited in eastern Wyoming's Campbell and Converse counties. EOG also has acreage in Johnson County, adjacent and to the west.


As is true of the western Permian, the PRB is "prolific," with almost a mile-deep column of pay and multiple targets, David Trice, EOG's executive vice president for exploration and production, said during the company's Q2 call.

EOG executives on the call unveiled two geological formations, the Mowry and the Niobrara, as viable within the PRB. The company operates a two-rig program in the basin this year, and will complete 45 net wells, an activity level that will ramp up in 2019 with output impact later that year and 2020, Trice said.

Lance Terveen, EOG's senior vice president of marketing, called PRB oil takeaway "plentiful," with both Casper and Guernsey hubs supplying access to multiple local refining markets and also Salt Lake City and Denver.

Also, Tallgass Energy Partners and Silver Creek Midstream created a joint venture in February to build the Iron Horse pipeline, which will deliver 100,000 b/d of crude from the basin to Guernsey, Wyoming. There it will connect to the Pony Express Pipeline that eventually lands in Cushing, Oklahoma.

Iron Horse, slated to start up in February 2019, is expandable to 200,000 b/d.

"We are studying all options, even the potential to move barrels to the Gulf Coast," Terveen said. "We currently anticipate the local market dynamics for oil and condensate to remain strong into 2019 [and] are working on solutions for longer-term gathering and oil terminal infrastructure."

Devon is running a lone PRB rig, but plans to pick up a second later this year and add two more beyond that. Tony Vaughn, Devon's chief operating officer, singled out the Turner formation in the company's Q2 call as the company's main resource opportunity "that will drive a lot of [our] pace of activity" in the PRB, although the company has also drilled other intervals such as the shallower-depth Parkman and Teapot.

Anadarko is also focused on the Turner, where some of its wells showed initial outputs of more than 2,000 b/d of oil equivalent each, company CEO Al Walker said -- a relatively high rate. Chesapeake, which likewise has zoomed in on the Turner, has five rigs in the basin and may add a sixth next year, when its PRB oil production (8,000 b/d in Q2) should double.

The PRB was "never far off the radar screen," Jefferies' Lear said, noting many large operators kept active there in recent years albeit at a smaller scale than now. But "with other US onshore plays hampered by infrastructure constraints and showing signs of maturity and lower productivity, now was as good a time as any to introduce a new play to the mix."

-- Starr Spencer,

-- Edited by Derek Sands,