Houston-based LINN Energy LLC [Nasdaq: LINE] said June 25 that it has signed a definitive purchase agreement to acquire properties in the Jonah Field, located in the Green River Basin of southwest Wyoming, from BP America Production Company for a contract price of $1.025 billion, subject to the usual closing conditions. The deal should close on or before July 31 and will be financed with proceeds from borrowings under its revolving credit facility.
“This acquisition provides LINN with a significant operated position in the Green River Basin of Wyoming and the opportunity to add employees to our staff who have hands-on experience with operations in the Jonah Field,” said Mark E. Ellis, chairman, president and CEO of LINN. “The long-life, low-decline characteristics of the Jonah Field make this asset an excellent fit for us. These properties are expected to provide approximately 145 million cubic feet equivalent per day of liquids-rich natural gas production. Furthermore, we expect this asset to be immediately accretive to distributable cash flow per unit, and it holds significant future drilling inventory. Consistent with our strategy, we have hedged 100% of the expected net oil and natural gas production for approximately six years through 2017.”
Significant characteristics expected from the acquisition:
· Immediately accretive to distributable cash flow per unit
· Estimated adjusted EBITDA of about $160 million (first 12 months)
· Production of about 145 MMcfe/d (55% operated)
· Low decline rate of approximately 14%
· Proved reserves of approximately 730 bcfe (56% PDP)
· 73% natural gas, 23% NGLs, and 4% oil
· Identified resource potential of approximately 1.2 tcfe
· About 750 producing wells and more than 12,500 net acres
· Potential for production optimization and cost savings
· Estimated maintenance capital of approximately $40 million to $50 million (first 12 months)
Consistent with LINN’s strategy to hedge production associated with acquisitions, the company has hedged approximately100% of the oil and natural gas production associated with this transaction through 2017, or approximately six years. LINN used a combination of swaps and puts to hedge the production volumes, which preserves significant upside if commodity prices rise.
Including the pending Jonah Field transaction, LINN has announced or closed almost $3 billion of acquisitions year to date. To maintain adequate financial flexibility and liquidity in light of the company's expanding size and scale, prior to closing LINN intends to request an increase to its revolving credit facility note amount from $2 billion to $3 billion, subject to lender approval and final documentation.
In addition to customary closing conditions, the acquisition is subject to a preferential right of purchase that encompasses substantially all of the properties. The expiry period for waiver or acceptance of the preferential right of purchase is anticipated during the first week of July 2012. The transaction is expected to close on or before July 31.
LINN Energy is a top-15 U.S. independent oil and natural gas development company, with approximately 5.1 tcfe of proved reserves (pro forma for closed and announced 2012 acquisitions) in producing US basins as of Dec. 31, 2011.
Barclays Capital, BMO Capital Markets, and RBC Richardson Barr acted as financial advisors to LINN Energy for the acquisition.