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Making Sense of LINN Energy’s
Asset Trade with ExxonMobil
Photo credit: LINN Energy
We have a deal:
On May 21 LINN Energy and LinnCo
announced that LINN Energy signed a
definitive agreement to trade a porti...
What LINN Energy/LinnCo receives:
• Current production of 85 Mmcfe/d (80% natural
gas and 20% NGLs).
• Shallow base declin...
What LINN Energy/LinnCo Gets
• Current production of 85 Mmcfe/d (80% natural
gas and 20% NGLs).
• Shallow base decline rat...
What ExxonMobil receives:
• 25,000 net acres in the Midland Basin that are
prospective for the Wolfcamp and Spraberry
form...
Apples-to-Apples
• From oil to gas:
• LINN Energy is trading about 2,000 barrels of oil
equivalent production per day, or ...
What this means to LINN Energy
• That production uplift is accretive to net cash
available for distribution by $30-$40 mil...
What this means to LINN Energy
• Deal is positive on many levels.
• Increases cash flow.
• Increases reserves by 10%.
• Re...
LINN still has substantial assets left
• Deal is positive on many levels.
• Increases cash flow.
• Increases reserves by 1...
LINN still has substantial assets left
• Opportunity to complete more trades or asset
sales on the approximately 30,000 ac...
Investor takeaway
• Trade with ExxonMobil
accomplishes a number of
important goals for LINN
Energy.
• Improves decline rat...
The “secret formula” to
LINN Energy’s success.
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Making Sense of LINN Energy LLC's Big Trade

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LINN Energy (NASDAQ: LINE) and LinnCo (NASDAQ: LNCO) announced the first trade involving LINN Energy's acreage in the Permian Basin. LINN Energy is trading 25,000 net acres in Texas' Midland Basin, as well as 1,000 net acres in New Mexico to ExxonMobil (NYSE: XOM) for 500,000 net acres in the Hugoton Field of Kansas.

There are a lot of moving parts to this deal. LINN Energy and LinnCo are shipping out acreage that's prospective for oil-rich horizontal drilling as well as some current production to ExxonMobil for natural gas assets. At the same time LINN Energy is keeping some of the production from the acreage it's sending to ExxonMobil. Needless to say there is some complexity here that makes the deal a bit tougher to understand.

To help investors gain a better understanding of the transaction I've created the following slideshow. The presentation will break apart the deal so that investors can gain a better understanding on what LINN Energy and LinnCo are gaining and losing in the deal with ExxonMobil as well as what the deal means for the future of LINN Energy.

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  • http://www.linnenergy.com/newsRoom/media.htm
  • http://files.shareholder.com/downloads/LINE/2506788784x0x756886/ae786a62-27ea-4048-b514-30ffc53b0c4a/Supplementals-PM-Hugoton_FINAL.pdf
  • http://news.exxonmobil.com/press-release/exxonmobil-increases-liquids-rich-wolfcamp-acreage-permian-basin
  • http://www.delekenergy.co.il/?pg=calc&CategoryID=198
  • http://files.shareholder.com/downloads/LINE/2506788784x0x749852/0B4CC630-4F6F-409C-9000-BD95A0E11337/Q1_Supp_Pages_FINAL.pdf
  • http://files.shareholder.com/downloads/LINE/2506788784x0x749852/0B4CC630-4F6F-409C-9000-BD95A0E11337/Q1_Supp_Pages_FINAL.pdf
  • http://files.shareholder.com/downloads/LINE/2506788784x0x749852/0B4CC630-4F6F-409C-9000-BD95A0E11337/Q1_Supp_Pages_FINAL.pdf
  • http://files.shareholder.com/downloads/LINE/2506788784x0x749852/0B4CC630-4F6F-409C-9000-BD95A0E11337/Q1_Supp_Pages_FINAL.pdf
  • Transcript of "Making Sense of LINN Energy LLC's Big Trade"

    1. 1. Making Sense of LINN Energy’s Asset Trade with ExxonMobil Photo credit: LINN Energy
    2. 2. We have a deal: On May 21 LINN Energy and LinnCo announced that LINN Energy signed a definitive agreement to trade a portion of its Permian Basin properties to ExxonMobil for operating interests in the Hugoton Basin.
    3. 3. What LINN Energy/LinnCo receives: • Current production of 85 Mmcfe/d (80% natural gas and 20% NGLs). • Shallow base decline rate of 6% per year. • Total reserves of 700 Bcfe (80% natural gas). • More than 500,000 net acres and 2,300 operated wells. • 400 future drilling locations, which double LINN’s inventory in the Hugoton Field.
    4. 4. What LINN Energy/LinnCo Gets • Current production of 85 Mmcfe/d (80% natural gas and 20% NGLs). • Shallow base decline rate of 6% per year. • Total reserves of 700 Bcfe (80% natural gas). • More than 500,000 net acres and 2,300 operated wells. • 400 future drilling locations, which double LINN’s inventory in the Hugoton Field.
    5. 5. What ExxonMobil receives: • 25,000 net acres in the Midland Basin that are prospective for the Wolfcamp and Spraberry formations. • 1,000 acres in New Mexico that augments its existing leasehold in the state. • Assets currently produce 5,000 BOE/d, however, ExxonMobil is just acquiring 2,000 BOE/d of that production.
    6. 6. Apples-to-Apples • From oil to gas: • LINN Energy is trading about 2,000 barrels of oil equivalent production per day, or BOE/d to ExxonMobil. That’s equivalent to 11.6 million cubic feet, or MMcfe of natural gas. • Meanwhile LINN Energy is picking up 85 MMcfe of natural gas production per day, which is equivalent to 14,654 BOE/d. • That’s a production uplift of about 73.4 Mmcfe/d or 12,654 BOE/d.
    7. 7. What this means to LINN Energy • That production uplift is accretive to net cash available for distribution by $30-$40 million per year. • This will likely erase LINN Energy’s estimated $17 million in shortfall of net cash after distributions for this year. • It will also keep LINN Energy’s distribution coverage ratio around 1.0 times for 2014.
    8. 8. What this means to LINN Energy • Deal is positive on many levels. • Increases cash flow. • Increases reserves by 10%. • Reduces debt to proved reserves by 9%. • Reduces debt to production by 6%. • Lowers the overall decline rate of the company and reduces future capital intensity.
    9. 9. LINN still has substantial assets left • Deal is positive on many levels. • Increases cash flow. • Increases reserves by 10% • Reduces debt to proved reserves by 9% • Reduces debt to production by 6% • Lowers the overall decline rate of the company and reduces future capital intensity.
    10. 10. LINN still has substantial assets left • Opportunity to complete more trades or asset sales on the approximately 30,000 acres that remain. • LINN Energy CEO said company continues to see “strong interest” in remaining assets. • Any additional trades or sales could be more material to improving the company’s decline rate and cash flow while reducing its capital intensity and debt profile.
    11. 11. Investor takeaway • Trade with ExxonMobil accomplishes a number of important goals for LINN Energy. • Improves decline rate, cash flow and credit metrics while adding low risk drilling opportunities. • Company has additional assets left to trade, which suggests additional upside is possible.
    12. 12. The “secret formula” to LINN Energy’s success.
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