It's the news investors have been waiting for. Upstream oil and gas Master Limited Partnership LINN Energy (NASDAQ:LINE) finally announced the course of action it would take pertaining to its Permian Basin position. For months, speculation swirled about what the company would do, since it had outlined several possible options long ago, yet declined to provide definitive details.

There's no more need to speculate. The company reached a deal with ExxonMobil (NYSE:XOM) to swap assets with Exxon and its subsidiary, XTO Energy. LINN management was quick to celebrate the deal, assuring analysts and investors that the trade represents a future growth catalyst and follows on the company's key strategic initiatives.

The market seemed much less certain of this, however. Shares of LINN and its financial holding entity LinnCo (NASDAQ:LNCO) jumped in after-hours trading upon news of the deal, then steadily trended lower the next day and ended just slightly higher. Here's why the deal made strategic sense for LINN, but isn't the financial windfall management is making it out to be.

Big Oil makes a trade
ExxonMobil will receive LINN's 25,000 net acres in the Midland Basin. From a production standpoint, ExxonMobil will absorb approximately 2,000 barrels of oil equivalents per day of current production, and LINN will retain about 3,000 barrels of oil per day.

In return, LINN receives a portion of ExxonMobil's interest in the Hugoton Field that stretches across Kansas and Oklahoma. This field, which is comprised of more than a half-million net acres and 2,300 operated wells, is currently producing roughly 85 MM cubic feet of equivalents per day. Of this production, 80% is natural gas and 20% is composed of natural gas liquids.

Total reserves are estimated to be approximately 700 billion cubic feet of equivalents, again, 80% of which are natural gas. Going forward, LINN has identified more than 400 future drilling locations, which will represent a good complement to LINN's existing Hugoton operations.

Strategic plan fulfilled
The deal achieves the separate strategic priorities for both ExxonMobil and LINN Energy. ExxonMobil will be able to accelerate the shift in product mix enacted over the past couple of years. The company has shifted intensity toward liquids and away from natural gas recently, because liquids are higher-margin products.

From LINN's perspective, the company has more quickly monetized its Permian assets now than it would have had it begun a drilling program on its own. Moreover, LINN has long held the policy of seeking out mature, long-lived assets with steady, immediate cash flow. Essentially, LINN can't afford to waste time on speculative positions that may or may not pan out. It needs solid assets that currently produce, which its newly acquired assets certainly do. The accretion to cash available for distribution is pegged at $30 million-$40 million.

This means that LINN will have additional flexibility to fund its 10% distribution, just in the nick of time. LINN distributed $4 million more to investors last year than it brought in from operating cash flow. Fortunately, the deal will buy LINN some time to keep paying its hefty double-digit distribution. Longer-term, however, significant concerns exist. The company will have to keep finding new, lucrative sources of production to keep that distribution intact.

It's worth remembering, though, what LINN gave up in the deal. The Permian assets were highly prized by the company for their potential. It may take a while for ExxonMobil to develop the assets, but it's not in a hurry like LINN. Exxon can easily afford to be patient in exchange for huge long-term benefits.

The Foolish bottom line
LINN finally announced a plan of action for its prized Permian asset, after months of rumors and speculation about what it would do. Trading the asset to ExxonMobil for assets that have more up-front production potential was most likely the best course of action. A trade is more tax-advantaged than an outright sale, and less costly than beginning a new drilling program.

The deal makes strategic sense for both companies. ExxonMobil has the financial flexibility to wait it out and develop the assets over time, while LINN gets a more immediate boost to production. The task for LINN management now is to keep focus on the long term.

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Bob Ciura owns shares of Linn Co, 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.