After drilling some disappointing wells targeting the Hogshooter interval of the Granite Wash in the Texas Panhandle, Linn Energy LLC is now concentrating its efforts on the Oklahoma Hogshooter, where the reservoir is seen to be of better quality with less variability, CEO Mark E. Ellis said Thursday.

The company has drilled 28 wells within the Hogshooter interval on acreage in Wheeler County, TX. Several of the recently drilled wells have underperformed the expected type curve. Therefore, the company has now shifted Hogshooter development to focus on the Mayfield area of western Oklahoma.

Linn has participated in four operated and nonoperated Hogshooter wells in Oklahoma with an average initial production rate of 3,375 boe/d (72% liquids). The company has four rigs drilling in western Oklahoma where it owns 25,000 net acres. Linn said it is encouraged by early results from the shallower, oil-bearing intervals in Oklahoma as these intervals tend to be thicker than in Texas and provide the opportunity for multi-stacked, horizontal wells in the area.

“The Oklahoma Hogshooter wells generate very favorable rates of return, and Linn’s inventory of Hogshooter and other oily zone opportunities will continue to expand as additional wells are completed,” the company said. “Linn has a lower average working interest in the Oklahoma portion of the Granite Wash compared to its Texas portion. Given the lower working interest, the company anticipates spending less capital.”

In the Mayfield area of the Hogshooter, “there is some variability, probably not quite as much variability in Oklahoma so far as what we’ve seen in the Texas Panhandle. The zone appears to be a bit thicker, a little bit better reservoir quality on the Oklahoma side, so that’s really the reason we kind of shifted towards Oklahoma,” Ellis said during an earnings conference call. “We like the returns, we like the potential we have over there better than the remaining inventory we have on the Texas side at this point.”

However, the company is not abandoning the Texas Hogshooter and will go back to it at the right time, Ellis said.

“While the company experienced a challenging operating environment in the first quarter, the high quality and depth of our inventory still gives us the ability to grow organic production nearly 10% in 2013. This production growth will allow the company to steadily increase its distribution coverage ratio throughout the year,” said Ellis.

Linn increased production 69% to an average of 796 MMcfe/d in the first quarter, compared to 471 MMcfe/d for the first quarter of 2012. The increase was due to acquisitions and organic growth, Linn said.

First quarter production volumes were negatively affected by weather, infrastructure curtailments and ethane-rejection, the company said. In February and March, the Texas Panhandle, Oklahoma and Kansas experienced severe winter weather, which caused significant shut-ins and drilling delays. In addition, infrastructure curtailments in the Permian Basin region resulted in lower-than-expected production volumes caused by shut-ins and high line pressures, a situation Ellis said should begin improving during the second half of the year. Production volumes from the Jonah Field were negatively affected by ethane rejection in the region. Linn said ethane rejection in the Jonah field will reduce full-year production by about10 MMcfe/d.

For the first quarter the company reported a net loss of $222 million (minus 96 cents/unit), which includes noncash losses of $189 million (82 cents/unit), from a change in fair value of hedges covering future production, an impairment of $57 million (24 cents/unit) from long-lived assets, merger transaction costs of $11 million (5 cents/unit) and a loss of $2 million (1 cent/unit) on the sale of assets. Excluding these items, adjusted net income for the first quarter was $37 million (16 cents/unit). For the first quarter of 2012 the company posted a net loss of $6.2 million (minus 4 cents/unit).