Linn Energy sells Permian assets, inks $1B deal to fund growth

Houston-based Linn Energy starts week with three bold deals

Struggling Linn Energy announced a flurry of deals Monday that included selling Permian Basin assets for $281 million and securing $1.5 billion in new financing the company hopes will re-ignite growth.

Linn Energy CEO Mark E. Ellis.

Linn Energy stock value has dropped from $32 per unit last July down to less than $9 Tuesday as oil prices dropped to the $50/barrel territory.

The Permian properties sold to an undisclosed buy include approximately 6,400 net acres for horizontal Wolfcamp drilling and approximately 2.0 MBoe/d of current production from 133 gross wells.

In a separate announcement, Linn Energy says it has agreed to a financing arrangement with private capital investor Quantum Energy Partners to initially commit up to $1 billion of equity capital to fund acquisitions and development of oil and natural gas assets.

LINN will have the ability to participate in all acquisition opportunities with a direct working interest ranging from 15 per cent to 50 per cent.

“AcqCo” assets will be managed by Linn Energy in exchange for reimbursement of general and administrative expenses and after certain investor return hurdles are met, Linn Energy will have the ability to earn a promoted interest in AcqCo. Upon the sale of any assets within AcqCo, Linn Energy will be given right of first offer to acquire the assets.

“We are very excited to have finalized this new opportunity and are pleased to be working with Quantum in this unique partnership,” said CEO Mark E. Ellis. “We anticipate a number of attractive assets may come to market in the current environment and we expect these agreements will position the Company to take advantage of such opportunities.”

Strategic advantages expected for Linn Energy:

• Creates a “drop-down” entity in which assets can be purchased and harvested on an ongoing basis;
• Allows participation in acquisitions outside of the conventional MLP asset profile;
• Enhances ability to capture acquisition opportunities during distressed market conditions;
• Provides potentially more accretion to cash flow per unit as a result of the promote structure;
• Creates a long-term partnership with a private capital provider which is scalable and repeatable; and
• Provides Linn Energy with the dynamic ability to acquire and finance acquisitions at the most advantageous times.

Linn Energy also signed an agreement with private capital investor GSO Capital Partners L.P., the credit platform of The Blackstone Group L.P. (NYSE:BX), to fund oil and natural gas development.

Funds managed by GSO and its affiliates have agreed to commit up to $500 million with 5-year availability to fund drilling programs on locations provided by Linn Energy.

Subject to adjustments depending on asset characteristics and return expectations of the selected drilling plan, GSO will fund 100 per cent of the costs associated with new wells is expected to receive an 85 percent working interest in these wells until it achieves a 15 per cent internal rate of return on annual groupings of wells. Upon reaching the internal rate of return target, GSO’s interest will be reduced to 5 per cent, while Linn Energy;s will increase to 95 per cent.

“We are extremely pleased to have finalized the agreement with GSO creating a new source of capital that will allow us to develop assets without increasing capital intensity, enhance our long-term ability to live within cash flow and provide cashless dropdowns of stable production over time,” said Ellis in a release.

Like most oil and gas producers, Linn Energy responded to collapsing oil prices by cutting its capital spending and cash distributions by at least half last year. The company also sold assets in the Texas Panhandle and western Oklahoma to EnerVest for nearly $2 billion, and other Permian Basin assets to Fleur de Lis Energy for $350 million.