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LINN Energy, LLC Finally Finalizes 3 Key Transactions

By Matthew DiLallo - Jul 6, 2015 at 9:37AM

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LINN Energy, LLC completes the DrillCo and AcqCo deals and sells its remaining Midland Basin acreage.


Source: LINN Energy, LLC

After months of waiting LINN Energy, LLC (LINEQ) investors finally have confirmation that the company has indeed finalized three transactions that have been pending for months. This is after the company announced that it finalized both the DrillCo strategic alliance with GSO Partners and the AcqCo alliance with Quantum Energy Partners. In addition to that, the company also announced the sale of its remaining Midland Basin acreage. Here's what these three key deals mean for LINN Energy. 

DrillCo is finally done
LINN Energy first announced that it had signed a non-binding letter of intent with GSO Capital Partners in early January. That agreement is now formalized with the same terms as the original letter of intent. It's an agreement that will provide LINN Energy with up to $500 million with a 5-year availability to fund drilling programs on LINN's acreage. Per the agreement GSO will fund 100% of the costs associated with the new wells and it will receive an 85% working interest in the wells with LINN receiving the other 15%. Once GSO earns a 15% internal rate of return it will hand over all but 5% of the working interest back to LINN. It's a deal that will enable LINN to increase its drilling plans without LINN funding the additional capital.  

AcqCo is also final
LINN also finalized its strategic alliance with Quantum Energy Partners for the AcqCo agreement, which is also known as QL Energy I, LLC. It's an agreement the company first hinted at in January, but didn't sign a non-binding letter of intent until March. Like the initial DrillCo agreement, there are no major changes to the initial terms of AcqCo. Per the agreement, Quantum has agreed to initially commit $1 billion of equity capital to fund acquisitions that are sourced and operated by LINN, which will initially own a minority working interest in the acquired assets. It's an entity that will then create future "drop-down" opportunities for LINN as it has the right to acquire assets owned by AcqCo. Like the DrillCo agreement, this transaction enables LINN to fund growth largely outside of its own balance sheet. 

Last of the Midland Basin acreage is gone
The final transaction LINN announced on Monday was the sale of its remaining Midland Basin acreage. The company sold 6,400 net acres for $281 million to an undisclosed buyer. It's an asset that's producing about 2,000 barrels of oil equivalent per day, or BOE/d. That said, it appears that LINN is keeping its most productive acreage as the initial plan was to sell 6,600 acres that were producing 8,000 BOE/d.   

There are two other items worth noting regarding this particular transaction. First, this acreage would have been ideal for the DrillCo agreement. So, the fact that LINN is parting with the acreage suggests it has something else in mind for those funds. Second, most of LINN's Midland Basin deals involved trades for producing assets or a cash sale to be used to fund a previous acquisition. This suggests that LINN either has an acquisition in mind for this capital, or now plans to go shopping. Suffice it to say, the company should have follow-up news soon on how it plans to spend the nearly $1.8 billion in capital it now has at its disposal.

Investor takeaway
In finally finalizing these deals, LINN Energy has provided some certainty surrounding its future financing. That said, the company still has to make good use of these funds, and at the moment there are no details on what it plans to do with all this money. Hopefully the company's management team will have details on its plan by the time it reports second-quarter results at the end of July.


Matt DiLallo owns shares of Linn Energy, 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.

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