DJ Basin production could increase, with greater capital allocation among operators

6/2/2021

The Denver Julesburg (DJ) Basin located in Colorado and Wyoming has experienced a constant decline since production peaked in November 2019. Reversing this trend will depend on the capital allocation from major oil and gas operators in this region, says GlobalData, a leading data and analytics company.

According to GlobalData’s latest report, ‘DJ Basin in the US, 2021 – Oil and Gas Shale Market Analysis and Outlook to 2025’, the DJ Basin accounted for 7.02% of oil and 6.65% of natural gas production in the United States Lower 48 for 2020.

Oil and gas production in the DJ Basin was adversely affected by the COVID-19 outbreak and subsequent restrictions on economic activity. However, H1 2021 imparted optimism in the market, paving the way for recovery. As restrictions and travel bans were gradually eased, demand prospects improved and encouraged production. However, even with this improvement, production of both oil and gas is not expected to recover to pre-pandemic level.     

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Svetlana Doh, Oil & Gas Analyst at GlobalData, comments: “The DJ Basin averaged 26 drilling rigs in 2019 and then decreased by 65% to an average of nine rigs in 2020. While other basins throughout the US have increased their rig count with commodity prices rising to pre-pandemic levels, the DJ Basin has lagged with its rig count and remained at seven rigs since the beginning of the year.

“A rise in production will depend on the capital allocation for the major operators in this region. Major operators, such as Occidental Petroleum and Chevron, are earning better returns from their investments in other basins, such as Permian. Thus, companies are going to deploy their capital to the acreage with the best economics in DJ Basin, but could grow production from drilled but uncompleted wells (DUCs).”

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With West Texas Intermediate (WTI) future prices averaging US$62.85 per bbl for the remainder of 2021, GlobalData expects a slight uptick in the rig count, but it will not reach the level that was present in 2019. Additionally, while production is expected to increase over the next two to five years, it will still not recover to 2019 levels.

Doh adds: “Another effect on overall production growth from the DJ Basin will depend on small independent companies. While commodity prices have increased and companies are able to generate free cash flow, pure play DJ Basin operators are able to increase their rig count.”

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