LINN Energy (Nasdaq:LINE) is making a big bet on the Granite Wash in 2012 and plans to spend the majority of its capital budget on oil and gas exploration and development in this area. (Find out how to invest and protect your investments in this slippery sector. For more, see What Determines Oil Prices?)

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2012 Capital Budget
LINN Energy announced a capital budget of $880 million for 2012, with 53% of the funds allocated to the exploration and development of various Granite Wash formations in the Texas panhandle area. This level of spending will cover 75 Granite Wash horizontal wells next year for the company.

LINN Energy expects that this budget will lead to 40% production growth in 2012, with approximately half the growth generated organically. (To know more about oil and gas, read Oil And Gas Industry Primer.)

Granite Wash
The Granite Wash is a generic term used to refer to a number of stacked oil and gas formations in the Texas and Oklahoma Panhandle area. These include the Carr, Britt and Granite Wash A to F zones, which are present at approximate depths ranging from 12,000 to 15,000 feet.

Exploration and production companies are using horizontal drilling and fracturing to develop these plays and favor the Granite Wash due to the large amounts of natural gas liquids and condensate produced with the natural gas stream.

LINN Energy has historically grown through acquisitions and has added $7 billion worth of properties over the last decade. The company continued this strategy in 2011 and recently closed on the purchase of additional acreage in the Granite Wash.

LINN Energy purchased 20,000 net acres from Plains Exploration & Production Company (NYSE:PXP) for approximately $600 million. The company picked up 263 Bcfe of proved reserves and net production of 80 million cubic feet equivalent per day. LINN Energy also picked up substantial undeveloped properties and estimates that it added 200 drilling locations to its Granite Wash inventory.

Other Operators
Several other major oil and gas companies are also active in the Granite Wash.

Newfield Exploration Company (NYSE:NFX) has completed a total of 57 wells into the Texas portion of the Granite Wash through the third quarter of 2011. The company reported total net production of 120 million cubic feet of natural gas equivalents per day, and plans to start assessing properties on the Oklahoma side of the play.

QEP Resources (NYSE:QEP) is also involved with this play and estimates that the company has resource potential of 103 Bcfe here. The company has 27,000 net acres and is operating two rigs to develop its Granite Wash properties.

Unit Corporation (NYSE:UNT) has 36,000 net acres prospective for the Granite Wash in Texas and Oklahoma. The company spent 27% of its $357 million 2011 capital budget in this play.

The Bottom Line
LINN Energy is gambling that the Granite Wash will be the place to be in 2012 and has decided to put more than half of its capital budget into these plays next year. These funds will generate an industry-leading growth in production for 2012. (For additional reading, check out A Guide To Investing In Oil Markets.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.