Linn Energy, Anadarko Form $400 Million Joint Venture In Powder River Basin
Entered JV for 23% of CO2 enhanced oil recovery development of 22,000-acre Salt Creek Field in WY Powder River Basin in Natrona County, featuring 4,000 wells, gaining interest in 1,600 BOE/d.
The MLP Linn Energy LLC, Houston, (Nasdaq: LINE) announced a joint-venture agreement with an affiliate of Anadarko Petroleum Corp., The Woodlands, Texas, (NYSE: APC), whereby Linn will participate as a partner in the CO2 enhanced oil recovery development of the Salt Creek Field in the Powder River Basin of Wyoming.
Anadarko assigned Linn 23% of its interest in the field in exchange for future funding of $400 million of Anadarko's development costs.
The interest, located in Natrona County, includes net production of approximately 1,600 barrels of oil per day, expected to increase to 3,800 BO per day by 2016. The estimated reserve life is 28 years with 1 billion barrels of gross oil remaining in place. The property includes 4,000 gross wells and 22,000 gross acres.
Over the next three to six years, Linn expects to invest a total of $600 million, which includes the $400 million of Anadarko's costs and $200 million net to Linn's assigned interest. Anadarko has been utilizing CO2 to develop this field since 2004, and additional development associated with this joint venture is expected to double current production by 2015. The agreement was signed and closed April 3, 2012.
Mark E. Ellis, chairman, president and chief executive officer, says, "We believe this long-life asset is unique because it is expected to deliver 10 years of steady production growth while, at the same time, providing a low base-decline rate. In addition, CO2 can potentially be used to enhance recovery in other reservoirs and portions of the field.”
Linn plans to use the knowledge gained from the partnership to apply CO2 recovery to other legacy oil fields.
"This will be Linn’s first property that utilizes CO2-enhanced oil recovery. We believe the experience gained from this joint venture will be invaluable, as it can be easily transferable to the company’s other properties in the future," say Raymond James analysts Kevin Smith and Darren Horowitz. "Additionally, the property itself has plenty of upside for Linn, with production expected to steadily increase over the next 10 years. This oil-weighted, high-growth, low decline asset should provide meaningful cash flow growth for the partnership for many years to come."
Linn has committed more than $1.7 billion in three acquisitions year to date.