Salt Creek Oil Field in Wyoming. Source: Anadarko Petroleum Corporation 

LINN Energy LLC (LINEQ) has been on a mission this year. The company's sole focus has been to get rid of assets that have rapid production decline rates and replace those assets with ones that have a much shallower decline rate. The company is almost complete with its portfolio reshuffling, which will free it up to again pursue deals that can provide meaningful growth. In fact, the deal that I think could be next on LINN Energy's agenda is buying out Anadarko Petroleum's (APC) interest in the Salt Creek oil field in Wyoming, which Anadarko Petroleum is now seeking to sell. Here's why that deal makes sense.

Drilling down into Salt Creek
LINN Energy has been Anadarko Petroleum's joint venture partner at Salt Creek since 2012 when it acquired a 23% stake in the field. In the deal LINN Energy agreed to invest up to $600 million over the subsequent three to six years. Of that amount, $400 million would fund Anadarko Petroleum's development costs, while $200 million would fund LINN Energy's interest in the project. That investment has been used to increase the development of carbon dioxide that's being used for enhanced oil recovery at the field. That original plan was expected to double 2012 production by next year and grow LINN Energy's portion of the project's EBITDA from $34 million to $85 million by 2016.

Source: LINN Energy LLC Investor Presentation 

The Salt Creek oil field really is a perfect asset for LINN Energy. As the above slide noted, Salt Creek's base production rate is only expected to decline by 7% per year, which is well below LINN Energy's 15% target rate. Because of that LINN Energy only needs to spend a minimal amount of maintenance capital, which is typically less than $15 million per year. Meanwhile, the production has a reserve life of 28 years as there's still over a billion barrels of oil left in place, and that production is actually expected to grow steadily for the next decade thanks to the investments LINN Energy is making to further develop the project through enhanced oil recovery.

Why this would be a good fit for LINN Energy
According to a report by Reuters, Anadarko Petroleum is currently evaluating the sale of its stake in Salt Creek. It is said to be seeking upward of $2 billion for its stake in the project, which isn't that far off the value placed on the asset when LINN Energy bought its stake a few years ago. Further, that price is right in LINN Energy's wheelhouse, as the company's average acquisition target has grown larger over the years, as the following slide notes.

Source: LINN Energy LLC Investor Presentation

LINN Energy needs to make bigger deals in order to move the needle, and buying out the rest of Salt Creek would do just that. Further, acquiring full ownership of Salt Creek would mesh with LINN Energy's strategy of consolidating its interests in its core basins. We saw this play out in 2014 as LINN Energy made three deals that consolidated its ownership interest in the Hugoton Basin so that it's now the largest operator in the basin.

Finally, the deal would secure full control over a perfect MLP-type asset that is just about to hit a cash flow inflection point. Through LINN Energy's investments over the past few years, Salt Creek's production is expected to be 16,500 barrels of oil per day and generate around $370 in EBITDA by 2016. LINN Energy's current interest in the asset will yield 3,800 barrels of oil per day and $85 million in EBITDA. That's up from 1,600 barrels of oil per day and $34 million in EBITDA when it acquired its interest in 2012. With decades of steady production growth and a billion barrels of oil in place, this is an asset that could provide meaningful cash flow growth for LINN Energy over the next decade along with a very manageable decline rate.

Investor takeaway
LINN Energy is in a great place right now as it is nearly complete with its portfolio reshuffling. Now, it's time for the company to pursue growth, and buying out Anadarko Petroleum's interest in Salt Creek would certainly be a move the needle. Not only would the deal provide an immediate benefit to distributable cash flow, but that cash flow could continue growing, which would finally allow the company to increase its payout to investors.