Friday, August 6, 2010

Linn Energy Corp, LLC (LINE) Granite Wash Well

By Andrea:

Linn Energy, LLC (LINE) announced today that the Black 50-1H Granite Wash well that was drilled earlier this year produced a whopping 60.2 MMcfe per day:

The Company owns a 63 percent working interest in the Black 50-1H well, which tested at a 24-hour production rate of 27.0 MMcf/d of natural gas and 3,190 Bbls/d of condensate at 2,150 psi flowing surface pressure. The natural gas production has a heating value of 1,316 Btu/cf, and when processed, should yield approximately 3,530 Bbls/d of natural gas liquids. Including estimated NGL recoveries and shrinkage associated with processing the natural gas, the Black 50-1H well produced approximately 60.2 MMcfe/d.

"The outstanding results from this second well are considerably above what we expected. We believe this is the highest rate well reported in the Granite Wash trend. The liquids content of over 6,700 Bbls/d represents more than 65 percent of the production stream and we anticipate pay-out on this well in as little as two months. The well is located in an area where LINN has a large concentrated acreage position. As a result, there are numerous follow-up drilling opportunities," said Mark E. Ellis, President and Chief Executive Officer of LINN Energy. "Our operating team has continued to drill horizontal Granite Wash wells in less drilling days and at lower costs than expected. The Granite Wash area is a major component of our drilling program and is expected to provide significant organic growth for the Company."

Back in March of 2008, Chesapeake Energy (NYSE: CHK) unveiled its monster Haynesville shale play, with CEO Aubrey McClendon dubbing the press release "the most important operational announcement in Chesapeake's 19-year history." Two other plays -- the Colony Granite Wash and the Mountain Front Granite Wash -- were introduced that day, but they didn't exactly share the spotlight.

In Chesapeake's second-quarter 2009 operational update, the company identified its Colony Granite Wash and Texas Panhandle Granite Wash plays as "the two highest rate-of-return plays in the company." In the third-quarter report, the company estimated the Colony's internal rate of return at 141%, based on selling the natural gas at $7 and the oil at $70. Chesapeake also spoke excitedly about its wash plays at the annual investor day, and began talking about its "Big 4 plus 1," putting its Greater Wash plays on the same pedestal as the treasured shale plays that European giants BP (NYSE: BP), Statoil, andTotal have so eagerly farmed into.

Despite all this promotion by Chesapeake, the buzz surrounding these plays remained pretty minimal. After almost two years, it seems that wash plays are finally beginning to elicit major enthusiasm. It's hard not to be excited about these wells, based on Forest Oil's (NYSE: FST) latest results. The company just announced its latest two Texas Panhandle wash wells, both of which produced at very large initial 24-hour rates. I won't repeat the numbers, because I don't support the industry practice of hyping rates that are known to decline sharply and immediately. Suffice it to say that they beat the eye-popping Haynesville shale results reported by Devon Energy (NYSE: DVN) in November.

The economics of the wash plays do not lie solely in their productivity. These wells, drilled horizontally through tight rock, have a strong liquids component, which makes them more valuable than a straight gas well. By liquids, I mean crude oil, condensate, and natural gas liquids (NGLs) like butane -- all of which are tied more closely to oil prices than natural gas prices. Some wash wells, like Newfield Exploration's (NYSE: NFX) McCoy 27-8H, initially kick out more than 1,000 barrels of NGLs per day. Penn Virginia (NYSE: PVA) says that some even produce more than 1,000 barrels of oil daily.

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