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Linn Energy, LLC (LINE) Message Board

  • rlp2451 rlp2451 Oct 5, 2012 8:20 AM Flag

    Why Linn Is Smart to Stay Out of the Bakken

    Findings from this in-depth study of time series for production from some individual wells:
    • Presently the estimated breakeven price for the “average” well in the Bakken formation in North Dakota is $80 - $90/Bbl In plain language this means that presently the commercial profitability for new wells is barely positive.
    • The “average” well now yields around 85 000 Bbls during the first 12 months of production and then experiences a year over year decline of 40% (+/-) 2%
    • The recent trend for newer “average” wells is one of a perceptible decline in well productivity (lower yields)
    • As of 2007 and also as of recent months, the total production of shale oil from Bakken, has shown exceptional growth and the (relatively high) specific average productivity (expressed as Bbls/day/well) has been sustained by starting up flow from an accelerating number of new wells
    • Now and based upon present observed trends for principally well productivity and crude oil futures (WTI), it is challenging to find support for the idea that total production of shale oil from the Bakken formation will move much above present levels of 0.6 - 0.7 Mb/d on an annual basis

    The specific average production (Bbls/day/well) had strong growth as from 2006 to 2008 and has since been sustained at around 140 Bbls/day/well. Start up of new wells shows an accelerating trend as from 2006. It is this accelerating start up of new wells that have resulted in growth in total production. Extraction/production of oil and gas from shale formations has its own distinct physics governed by geology and comprised of steep decline rates and challenging dynamics that define the rules to create overall growth, sustain a plateau and/or declines.

    In the period January 2010 and through August 2011 there was reported start of flow from a net addition of 1 417 wells of which 202 (or more than 14%) were subject to extensive statistical analysis. The statistical analysis formed the basis to define what is presently considered a pro forma well (or “average” well) for Bakken. The “average” (pro forma) well should not be expected to be static as it will continually change with time and presently the trend is one of declining productivity.

    The (overall) development of well productivity with time.
    • The wells normally have a high production at start up that rapidly enters into steep declines.
    • To facilitate growth in total production an accelerating number of wells needs to be brought into production.
    • To sustain a plateau requires a continual addition of a high number of producing wells.
    • Total production declined between March 2011 and as of October 2011 while the reported number of total wells with production saw little change.
    • Well productivity has shown a general decline for newer wells.

    Results from the statistical analysis of the wells were subject to in depth time series analysis. If the trend described by the statistical analysis persists and the wells analyzed are representative for Bakken it should be expected that total production from the Bakken formation is about to experience what in some circles is referred to as “the Red Queen” effect.

    In plain language this means that a high number of new wells needs to be brought to production to sustain total production.

    (There is) a worrying development for newer wells in the Bakken formation. Productivity as expressed by total first 12 month production has shown steep declines for newer wells. The productivity was growing until the summer of 2010 where it reached a high. Since the summer of 2010 to the summer of 2011 average first year productivity for newer wells in Bakken declined around 25%!

    On a long enough timeline, the highs in well productivities for the Sanish area and Statoil/Brigham will melt into a point. To repeat, the wells for the companies/areas subject to these in-depth studies had all a specific well productivity (as expressed by Bbls/day/well) that was above the average for the Bakken formation. The Sanish area in the Bakken formation is/was considered being one of the best and during a year (from the summer of 2010 to the summer of 2011) the well productivity (as described by total reported production during the 12 first months) declined about 40%. For Statoil/Brigham the well productivity declined about 10% in one year.

    Much more at The Oil Drum.

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    • You should probably read that article carefully, and spend some time trying to understand the production data presented in the table.

      "Bakken Update: The Red Queen Is Just A Fairy Tale Part III"
      October 18, 2012

      Sentiment: Strong Buy

    • From "Seeking Alpha"

      The "Hogshooter" is a limestone oil formation in Logan, Lincoln, Oklahoma, and Creek counties in western Oklahoma and the Texas Panhandle (roughly the Anadarko Basin/Granite Wash). Chesapeake Energy (CHK) announced on June 1, 2012 its largest oil gusher in company history in the Hogshooter formation. The Thurman Horn 406H well produced 5,400 bopd during its first eight days of operation. This was more than twice the output rate of some of the best performing wells in the Eagle Ford shale. This well which reaches 10,000 ft. in depth also pumped 4.6 MMcf /d of natural gas and 1,2000 bpd of natural gas liquids. All told, the initial production was 7,350 boe/d. This well is currently flowing at approximately 5,100 boe/d (65% liquids). In its first 60 days of production, it produced 265,000 barrels of oil, 65,000 barrels of NGLs, and 350 MMcf of natural gas. CHK has other excellent wells there too. It owns approximately 30,000 net acres in the Hogshooter Wash play. CHK is known to be selling some of its assets to raise cash for operations and to pay off debt. It is not considering selling its Hogshooter acres, which are in CHK's existing holdings in the Granite Wash play. CHK pays a 1.80% dividend. It has a $12.47B market cap.

      Apache Corp. (APA), which controls 200,000 gross acres in the Granite Wash, drilled its first two Hogshooter wells in 2010. They both produced over 2,000 bopd of oil initially. After about two months on production, each of the wells was averaging approximately 700 bopd and 3.5 MMcf/d of natural gas. The two wells were more than 15 miles apart in Beckham County, Oklahoma. This indicates that there is a substantial oil play in the Hogshooter. APA has since drilled many more wells with good success. APA pays a 0.80% dividend. It has a market cap of $33.81B.

      Linn Energy (LINE) drilled nine operated horizontal Hogshooter wells in Q3 2012. These have an average initial production rate of 1,983 bopd, 534 bpd of NGLs, and 3.4 MMcf/d of natural gas. To date, LINE has drilled 12 Hogshooter wells with an average initial production rate of 2,110 bopd, 528 bpd of NGLS, and 3.4 MMcf/d of natural gas. LINE owns about 95,000 net acres in the Granite Wash, and it had identified more than 600 horizontal drilling locations as of March 31, 2012. This play may help assure LINE investors that LINE will be able to continue to grow and pay its great dividend of nearly 7%. LINE has a market cap of $8.40B.

      • 3 Replies to rlp2451
      • One well in Hogshooter produces more than all the wells that Linn has interest in the Bakken combined, and Linn only has a 7% share. They might get petty cash money from it.

      • You think that by posting how smart LINE is to develop Hogshooter oil wells instead of granite wash wells at other levels/formations that somehow it detracts from the earlier post about the Bakken....pretty funny stuff.

        As you already know LINE is a non-operator in the Bakken, has been producing and increasing production there rather steadily, and has minimal risk since Linn uses some of the best operating partners and participates in many, many wells.....about 100 bakken wells in 2012, if i remember correctly from some 2012 presentation.

        Hogshooter wells are operated by LINE and are not like the LINE Bakken/Three forks wells which areLINE non-operated wells and are operated by some of the best in the Bakken.....CLR, SM, NFX, WLL, BEXP & OAS.

        Also, the entry into the Bakken was stated to be a strategic entry and described by Mr. Rockov at Enercom. He compared it to the Permian basin strategic entry & their 14 acquisitions there.

        Listen to LINE at Enercom.

        The economics are different, the cost is different, the operated vs non-operated model is different.....so, now you only like Hogshooter and not bakken?

        They both (Bakken & Hogshooter) generate lots of profit for LINE.

        Maybe you should attend Continental Resources investor day (today) and learn something?

      • Linn Energy (LINE) drilled nine operated horizontal Hogshooter wells in Q3 2012. These have an average initial production rate of 1,983 bopd, 534 bpd of NGLs, and 3.4 MMcf/d of natural gas. To date, LINE has drilled 12 Hogshooter wells with an average initial production rate of 2,110 bopd, 528 bpd of NGLS, and 3.4 MMcf/d of natural gas. LINE owns about 95,000 net acres in the Granite Wash, and it had identified more than 600 horizontal drilling locations as of March 31, 2012. This play may help assure LINE investors that LINE will be able to continue to grow and pay its great dividend of nearly 7%. LINE has a market cap of $8.40B.

        How does this compare to the DCF guidance for coverage and internal modeling assumptions?

    • Looks like just another cut and paste Job of yours without much more......as expected from you.

      And you posted at KOG like you were the town crier. Looks like you are presenting only part of the story again.

      Guess you missed Michael Filloon's response to that article....or, did you noticed it and only present the storythat you liked?

      Please let us know after you read this Seeking Alpha article:

      "Bakken Update: The Red Queen Is Just A Fairy Tale"
      October 5, 2012
      by Michael Filloon

      Who goes over the facts in good detail, and if you need some actual/real/data/added info, to get amore realistic and fuller picture of what the bigest oil boom in the USA looks like, then you may want to try asking these people or some of those who work for them for a good start:

      Lynn Helms
      Bud Brigham
      Harold Hamm
      Dr. Peter Hill
      Lynn Peterson

      If you do not know who they are, then just google each one for phone numbers and email addresses.

 
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