Freeport-McMoRan Inc (FCX -1.96%) is in the middle of repositioning its oil and gas portfolio. After exiting its Eagle Ford Shale position last quarter, the company is planning on selling another $4-$5 billion worth of assets. While there's likely to be lots of interested parties, two of the three assets it could sell would fit perfectly within LINN Energy's (LINEQ) portfolio. That's why I think the company should open up its checkbook and go shopping at Freeport-McMoRan's oil and gas sale.

What's Freeport-McMoRan selling?
Freeport-McMoRan's onshore assets consist of its position in the natural gas rich Hayneville Shale, a 14% interest in the Madden Deep assets in Wyoming and oil-rich assets in California. The map on the following slide provides some details on those positions.

Source: Freeport-McMoRan Inc Investor Presentation (link opens a PDF) 

While the Haynesville Shale assets might be of interest to growth focused producers, it's the Madden and California assets that I think LINN Energy should consider buying.

Drilling deeper into Madden
The Madden Deep Unit is operated by ConocoPhillips (COP 0.39%) and is on federal land. Freeport-McMoRan estimated that its interest in Madden contained 133 billion cubic feet equivalent of natural gas and about 30 future drilling locations, so it's not a growth asset by any means. However, the Madden Deep assets also include the Lost Cabin Gas Plant, which processes the gas and separates carbon dioxide from it. That's important because that carbon dioxide is being sold in the Rockies to companies like Denbury Resources (DNR) for enhanced oil recovery as the following slide notes.

Source: Denbury Resources Investor Presentation (link opens a PDF) 

Denbury Resources estimates that there are 1.3 to 3.2 billion barrels of oil recoverable in the Rockies through enhanced oil recovery using carbon dioxide. That's a tremendous opportunity not just for Denbury Resources, but for LINN Energy, which also is involved in enhanced oil recovery at its Salt Creek joint venture in Wyoming. Acquiring Freeport-McMoRan's interest in Madden Deep and Lost Cabin would enhance its position in the region giving it an opportunity to join Denbury Resources in building an enhanced oil recovery business in the Rockies.

California dreaming
While Madden would be a fine addition to LINN Energy's portfolio, the real prize here would be Freeport-McMoRan's California assets. These oil-rich assets produced 39,000 barrels of oil equivalent per day in this past quarter, which was 2,000 barrels of oil per day higher than it produced in the year ago first quarter. Overall, the assets have a stable production profile and come with 2,000 future well locations to keep production flowing.

These really are the perfect assets for an MLP like LINN Energy, which bulked up on its California oil assets last year when it bought Berry Petroleum. Like Freeport-McMoRan, much of LINN Energy's production in California is from mature, low-decline oil properties from the San Joaquin Valley and Los Angeles Basin. As the following slide notes, these are ideal MLP assets because of the shallow base decline and significant free cash flow.

Source LINN Energy Investor Presentation (link opens a PDF) 

The fact that these assets would fit well in an MLP isn't lost on Freeport-McMoRan. Jim Flores, the CEO of its energy business, noted on the company's conference call that the assets it's looking to sell would go for a premium these days because the "MLP market is very hot." He said that with debt markets offering low rates and oil prices strong, Freeport-McMoRan can sell its California assets to an MLP like LINN Energy and receive a good value for the assets. It can then reinvest the cash into its growth opportunities in the Gulf of Mexico as well as pay down debt and still get back that production by 2017, creating a real win for its investors.

Investor takeaway
LINN Energy has focused much of its attention this year to rid its portfolio of high decline horizontal assets. However, the company's first two deals were to acquire natural gas properties, which hasn't exactly enthused investors. LINN Energy could get back into the oil game and add to its California oil portfolio by acquiring Freeport-McMoRan's assets. Maybe it could even get Freeport-McMoRan's gas assets in Wyoming added in for little additional cost, which could expand its opportunity set in the Rockies. Bottom line here, if the price is right LINN Energy really should grab its checkbook and head over to the Freeport-McMoRan onshore asset sale.