HOUSTON -- Anadarko Petroleum Corp. announced yesterday a large shale oil discovery in the northeastern plains of Colorado.

The Woodlands, Texas-based company said the oil is in a tract it controls in the Wattenberg field, part of the Niobrara shale formation that begins about a half hour northeast of Denver and extends north into the Greeley area.

While Wattenberg already hosts thousands of marginal conventional oil wells, Anadarko said horizontal drilling and fracturing technology can extract a significant volume of extra crude oil and natural gas liquids -- up to 1.5 billion barrels of oil equivalent from its lease holdings.

Anadarko executives told financial analysts at a conference in Miami today that drilling and production results suggest the Niobrara could have greater potential than South Texas' Eagle Ford Shale, where drilling is rapidly spreading.

"These are big numbers," Anadarko President Al Walker told the Bank of America-Merrill Lynch conference. "We're going to be spending about a billion dollars a year on this field."

With oil prices again approaching $100 a barrel, Anadarko said it is planning a significant production program for the area.

The company is also helped by processing and transportation infrastructure in Colorado that can get crude and natural gas liquids to market. Walker said processing facilities his company recently acquired near Fort Lupton "gives us tremendous control over the liquids extraction."

In the release yesterday, the company says it has so far drilled 11 horizontal wells in the Wattenberg field to test the potential of "fracking" for liquid extraction. Fracking involves injecting water and some chemical lubricants underground at high pressure to break the tight rock formations trapping oil and natural gas.

Already the 11 horizontal wells drilled are "achieving strong initial rates and high liquids yields," the company says. Initial production from one well showed 1,100 barrels of oil and 2.4 million cubic feet of natural gas per day.

Anadarko said it will finish the year with about 40 horizontal wells drilled in the Wattenberg field and is planning to bring in more rigs to drill 160 wells next year, ramping up into 2013 and beyond. The company sees itself ultimately drilling between 1,200 and 2,700 horizontal wells in the Wattenberg field.

The company said total production potential from its holdings stands at between 500 million to 1.5 billion barrels of oil equivalent, the bulk of that in liquids.

"The field will perform, we believe, at least at the low end of the range we are predicting," Walker said. "Early returns here are quite good."

The field is particularly attractive, executives say, because Anadarko already controls about 350,000 net acres there with about 5,200 existing wells. Production from those assets is put at about 70,000 barrels of oil equivalent per day.

Walker indicated plans to use new technology at their existing wells to free up more oil, saving the company money and making their Niobrara holdings cheaper to develop than its assets in the Eagle Ford Shale.

Other companies are quickly moving to establish positions in Colorado's Niobrara Shale formation as the shale oil rush, sparked by booming output from North Dakota's Bakken field, spreads nationally (Greenwire, Nov. 4, 2011).

Earlier this year ConocoPhillips announced an acquisition of 46,000 acres of Niobrara lease holdings from Lario Oil & Gas Co., encompassing an area southeast of Denver. Oil field service companies like Houston's Select Energy Services LLC are also positioning themselves in the region.

Walker said his firm cannot vouch for the resource potential found outside its Wattenberg field holdings. He also indicated that their existing position in the Niobrara makes it unlikely that they will entertain offers for joint ventures to explore other parts of the shale formation.

The Denver-based trade group Western Energy Alliance (WEA) estimates that crude production from the Niobrara will, on the conservative side, increase to around 286,000 barrels a day by 2020.

"We believe that will go up over time, and I think this Anadarko announcement is illustrative of that," said WEA spokeswoman Kathleen Sgamma. "They're basing their estimates of 150,000 barrels a day based on drilling 11 wells, and they're just looking at one field, so I would suspect that as more companies ... drill in other fields we'll see those estimates go up."