5 Stocks to Play the Granite Wash
There are many companies producing oil from the region that spreads out from the Texas panhandle across to western Oklahoma known as the Granite Wash. While there is some oil production in the play, the area is mainly exploited for natural gas and natural gas liquids, much like fellow Texas plays, the Eagle Ford Shale and Permian Basin. Below you'll find a breakdown of five of the companies that are leading the way in the Granite Wash.
Chesapeake Energy (NYSE: CHK)
Chesapeake has the largest presence in the Granite Wash, with more wells than any other operator. The company created a special investment vehicle for investors looking to cash in on the play: the Chesapeake Granite Wash Trust (NYSE: CHKR) . The trust receives 90% of royalties from 69 existing wells and 50% of the royalties on 118 wells drilled in the future. Chesapeake estimates that it has 200 million barrels of oil equivalent in its Granite Wash proved reserves.
The company expects net production for the trust to peak in 2013 and 2014. The trust will expire in 2031.
Apache (NYSE: APA)
Apache drilled seven wells in the Granite Wash during the third quarter, part of its goal to complete 34 wells in the play by the end of the year.
The company drilled its first horizontal well in the play in 2009 and now controls about 200,000 gross acres. The Wash is the latest growth driver for Apache's U.S. mid-continent operations, and the company plans to increase drilling locations from 40 in 2011 to 200 by 2015. Sticking to its plan, Apache recently announced its intent to drill three new wells in Wheeler County, Texas.
Devon Energy (NYSE: DVN)
This company is in hot pursuit of liquids plays, increasing overall liquids production in the third quarter by 17% over the same period last year. Devon brought 10 wells on line in the Granite Wash during that time, and production from the new wells averaged 1,250 barrels of oil equivalent per day. Total production in the play averaged 16,400 BOE per day. Devon holds more than 60,000 acres in the Granite Wash.
Forest Oil (NYSE: FST)
Fifty percent of Forest Oil's 2011 capital expenditure plan was targeted at the Granite Wash, part of its overall initiative to direct 80% of spending at liquids-rich horizontal plays. The company completed seven wells in the third quarter that had average production rates of 15 MMcfe per day in the initial 24 hours. Liquids made up 45% of total equivalent production. The performance of the newer wells marked an improvement over the wells that Forest brought on line in the second quarter, which only yielded 9 MMcfe per day during that initial period.
Forest holds approximately 103,000 net acres in the Wash and intends to again focus much of its $550 million capital budget on exploiting liquids-rich plays in 2012.
Linn Energy (Nasdaq: LINE)
Last summer, Linn Energy drilled its second well in the Granite Wash and received outstanding results: 27 MMcf of natural gas, 3,190 barrels of condensate, and 3,530 barrels of natural gas liquid -- in 24 hours.
It is no surprise that the company continues to focus heavily on production in the region. In November, Linn doubled its Granite Wash inventory by purchasing properties from Plains Exploration & Production (NYSE: PXP) for $600 million. The deal is expected to officially close by the end of the year, giving Linn 20,000 net acres in the Wash with an estimated net production of 80 MMcfe per day.
Linn currently operates 29 producing wells in the Granite Wash, with nine others expected to come on line in the near future. Third-quarter production was up in the play to 64 MMcfe per day from 51 MMcfe per day in the second quarter.
The Granite Wash is yet another energy reserve that is booming because of horizontal drilling. As U.S. energy policy continues to evolve and natural gas continues to become more popular, companies like the ones outlined above should produce great returns. Consider also the tangential plays tied to increasing natural gas production, like pipelines, oil-field-service companies, and what Motley Fool analysts consider the "1 Stock to Own Before The Nat Gas Act Becomes Law."