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Supply Outlook Diverges for Two Rockies Basins

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We recently revised our crude oil supply outlook in the Rocky Mountain region based on diverging aboveground trends in the Powder River and Denver-Julesburg basins. Operators have been more willing to invest in Wyoming, leading to a more optimistic outlook for the Powder River.

In our latest monthly basin updates, East Daley Analytics forecast crude oil production from the Powder River will increase in June and continue to grow. Crude output peaked at 224 Mb/d in December ‘19 and then fell sharply during Covid lockdowns, dropping 22% by 4Q22. Since then, output from the eastern Wyoming basin has steadily increased M-o-M.

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EDA tracks rigs weekly by basin and midstream system in Energy Data Studio. Powder River rig counts have held steady at between 9-11 rigs since 4Q23. East Daley's Production Scenario Tools forecast basin production will reach new record highs by March 2028 (see figure).

Private operators have been driving growth in the Powder River. As of February ‘24, crude oil production in the basin stood at 199 Mb/d, with private E&Ps contributing 138 Mb/d (69%) of the total. Anschutz Exploration, the largest producer in the Powder River, has grown its oil production by 38% over the latest eight months, from 32 Mb/d in June 2023 to 44 Mb/d in February ‘24. EOG Resources (EOG) is also active in the basin.

On the natural gas side of the business, Western Midstream (WES), Crestwood Equity (CEQP) and Tallgrass Energy operate some of the largest G&P systems in the Powder River (see the G&P system map from Energy Data Studio).

Conversely, in the DJ Basin, another area within the Niobrara formation, EDA expects oil production to gradually decline over the next few years. DJ production also peaked in 4Q19, hitting a high of 564 Mb/d, then fell sharply in the 2020-21 downturn. DJ output has rebounded to 522 Mb/d as of December ’23, but we expect a declining rig count to take a toll going forward. The number of rigs active in northeastern Colorado has declined to 9 in May ’24 from 13 rigs at the start of 2024, according to data in Energy Data Studio.

M&A activity is slowing development in the DJ. Players like Occidental (OXY) and Chevron (CVX) hold significant positions in the DJ and have moderated spending in line with corporate discipline targets. OXY acquired Anadarko Petroleum in 3Q19, while CVX purchased Noble Energy in 4Q20 and PDC Energy in 3Q23. Another top producer in the DJ, Civitas Resources (CIVI), is focusing more on expanding its footprint in the Permian Basin. – Gage Dwan Tickers: CEQP, CVX, EOG, OXY, WES.


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