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Where LINN Energy Plans to Grow in 2013

http://www.fool.com/investing/general/2013/03/02/where-linn-energy-plans-to-grow-in.aspx

Matt DiLallo
March 2, 2013

Oil and natural gas income giant LINN Energy (NASDAQ: LINE) is out with its 2013 capital spending plan. With more than 10,000 prospective drilling locations across its more than half dozen core operating areas, LINN has plenty of options with which to invest its capital. Let's drill down and examine where LINN will be looking to boost its organic production growth in the year ahead.

A quick look back
Last year, LINN drilled 440 gross wells, with only four of them coming up dry. Those wells cost the company around $1 billion and boosted organic production by 15%. They also helped the company to produce a reserve replacement ratio of about 150% if you exclude price-based revisions and undeveloped reserves more than five years old. Those were great results for the company, which is expecting even more in the year ahead.

Drilling down into the 2013 capital budget
LINN plans to spend $1.1 billion on developing its oil and liquids-rich acreage. That money will allow LINN to drill or participate in about 500 wells over the next year. If everything goes according to plan, those wells should help LINN deliver another year of double-digit organic production growth.

The money will be split across its portfolio:

Source: LINN Energy Investor Presentation.

The Granite Wash is far and away the most important growth asset for LINN at the moment. The company is planning to spend more than a third of its capital to drill 80 wells into the play. The liquids-rich Hogshooter formation will continue to be the key target area for the company, as it generated excellent returns in 2012. Aside from that, the Permian Basin will see its share of capital in the coming year. While it is getting just 18% of the capital, LINN will use it to drill nearly 100 wells. Finally, the most interesting aspect of the drilling budget, in my opinion, is that LINN will be spending a great deal of capital to further develop its Jonah Field, which it acquired from BP (NYSE: BP) last year, while spending minimally on the Hugoton assets, which it also bought from BP last year.

Jonah is more of a gas asset, as 73% of production is