Anadarko Petroleum and Noble Energy made a really great trade this week, exchanging 50,000 net acres in the greater Wattenberg area of Colorado. This is a deal that just makes so much sense for both companies.

Unlocking Colorado's oil riches
To see evidence of that, investors need to simply look at the following map.


Source: Noble Energy

As the pretrade map shows, yellow and blue don't really mix well. That mixture made it more difficult for both companies to make development plans in the area. In trading acreage, each can now more efficiently plan to develop the play. It will reduce costs for both Noble Energy and Anadarko Petroleum while allowing the pair to better use existing infrastructure and really maximize the value of the play.

Both companies see a lot of potential growth in Colorado. While that state has produced some mixed results for other producers, Noble Energy and Anadarko view it as a premier growth asset. Noble sees 20% growth next year from its DJ Basin production. Looking further ahead, Noble actually expects to triple its oil production in the state over the next five years. What's incredible about that number is if it reaches its goal, the company will produce more oil than the entire state currently delivers.

Anadarko Petroleum also sees Colorado as a big part of its future. It projects its Wattenberg position representing $15 billion in potential value for the company. It has more than 4,000 future well sites, each estimated to ultimately deliver more than 350,000 barrels of oil equivalent production. By consolidating its position, Anadarko can better focus its development to unlock even greater value for investors.

There's more to Colorado's oil story
In addition to Noble Energy and Anadarko Petroleum, companies like ConocoPhillips and Whiting Petroleum also see a bright future for Colorado oil. Whiting announced earlier this year that the Redtail Niobrara would be its next growth pillar. Its position is northeast of Wattenberg and comes with excellent return characteristics. The returns are so good that Whiting CEO James Volker called the play the most exciting since the discovery of the Bakken.

ConocoPhillips also likes its position in the Niobrara. The company's early well results suggest that its position in the play has a higher liquids yield than the Wattenberg that Noble Energy and Anadarko Petroleum like so much. ConocoPhillips has consolidated its acreage position to roughly130,000 acres around what it has identified as the sweet spot.  

Investor takeaway
It's becoming clear that oil and gas producers are figuring out where Colorado's oil riches are hiding. While early exploration activities forced some producers to give up on the play, there clearly is value here. Producers still have a lot of work ahead to increase the amount of oil and gas each well produces. By consolidating their interests into focused positions, Anadarko and Noble can really focus on getting more out of the play.

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The article Is an Avalanche of Profits Looming in Colorado? originally appeared on Fool.com.

Fool contributor Matt DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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