Linn Energy Permian Basin

Photo credit: LINN Energy

Sometimes no news is good news and that's exactly what LINN Energy (NASDAQ:LINE) investors got when its acquisition target, Berry Petroleum (UNKNOWN:BRY.DL), reported earnings on Aug. 7. Berry only referred to the fact that the merger is currently being delayed by the SEC inquiry, meaning LINN investors can rest easier knowing that its deal won't be called off when LINN reports earnings tomorrow. With that as context, let's take a closer look at what Berry had to say about its operations, which are what LINN has been trying to acquire all year.

Drilling down into the numbers
Berry was able to report net earnings of $61 million, or $1.10 per share. However, after adjusting out items such as derivatives and transaction costs, its adjusted earnings were $41 million, or $0.73 per share. That was slightly below the $0.76 per share that analysts were expecting, but a solid result nonetheless.

For investors of LINN Energy and its affiliate LinnCo (NASDAQ:LNCO), which LINN is using to acquire Berry, the real numbers that matter are Berry's production results on the quarter. Here Berry reported very solid numbers as it averaged 39,529 barrels of oil equivalent per day, or boe/d, which was up 12% over last year. More importantly, its production mix has shifted from 74% to 80% oil over the past year. Because oil is so much more valuable than natural gas these days, this is exactly the type of shift investors will want to see as it means Berry is focusing its capital on its highest-return projects. 

In fact, Berry has been investing only to grow its oil production; it is actually allowing its natural gas production to naturally decline. Overall, its natural gas production has declined 11% year over year from 9,045 boe/d to 8,073 boe/d. Meanwhile, its oil production is up 20% year over year as the company has really focused it capital on its high-margin oil projects, which is what caught LINN's eye in the first place.

Production highlights
The highlight on the quarter was Berry's Diatomite properties in California, which delivered 15% production growth from just last quarter. The company added 47 new completions in the field last quarter which helped to drive those results. Elsewhere in California, the company grew production at its New Steam Floods asset by 12% quarter over quarter. The bottom line is that Berry continues to focus on expanding development in its oil-rich California assets in order to offset its natural gas production declines, while still growing its overall production.

The other important Berry asset that LINN investors need to watch closely is in the Uinta Basin, which would be a new operating area for LINN. Berry's production there was basically flat over the first quarter, despite drilling 22 wells. The company was hampered by delayed completion activity due to the of lack of takeaway capacity. Berry has shifted to transporting crude oil out via rail and now has 100 rail cars operating to get its oil to markets outside of Utah. That has now resolved the situation, meaning Berry's production here can  really start to deliver increased margins and cash flow.

Final Foolish thoughts
Berry's operations still look solid as the company continues to deliver despite the issues with closing its merger with LINN and LinnCo. For the year Berry expects to deliver total production growth of 5%-10%, with oil being the key driver as the company plans to boost its oil output by 10%-15%. With oil prices remaining well over $100, this is exactly what investors want to see and why LINN is trying to get the deal done despite the efforts of short-sellers to stop the transaction.

Fool contributor Matt DiLallo owns shares of LINN Energy, LLC and LinnCo, LLC and has the following options: short October 2013 $25 puts on LINN Energy, LLC and short November 2013 $25 puts on LinnCo, LLC. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.