When analyzing the buying power of the 14 upstream master limited partnerships (MLPs), it turns out Linn Energy LLC is the 800-pound gorilla of the group, according to R.W. Baird,senior research analyst Ethan Bellamy. Bellamy addressed 500 A&D professionals at Hart Energy’s A&D Strategies and Opportunities conference in Dallas recently.

“If you’ve got assets for sale, call Linn,” he said.

Linn has a huge appetite for M&A and is scaling up. “I wouldn’t be surprised to see them tack on another $10 billion in enterprise value in the next 18 months,” Bellamy said. “We’re in print saying they might buy Forest (Oil Corp.).”

British major BP Plc, in its efforts to raise $38 billion in asset sales globally, has turned to Houston-based Linn on two deals for mature U.S. assets for a total of $2.2 billion.

“Linn is the obvious go-to buyer for BP,” said Bellamy, “because of their capital, and their ability to analyze and close deals quickly.”

Additionally, Linn is queuing up an IPO of a C-Corp. entity call LinnCo, which Bellamy believes is structured for M&A events. As a corporation, Linn could then offer corporate shares as part of the purchase price, where partnership units aren’t as effective due to tax-related considerations.

“A $2-billion raise would not surprise us,” he said. “At a minimum, it will create a liquidity infusion.”

MLPs are able to pay premium value due to their attractive cost of capital resulting from not being taxed at the entity level, and their willingness to hedge production for five years, capturing the highest possible revenue stream.

Liquidity. Not only does Linn have deep pockets, but so does EV Energy Partners LP, Houston, which along with private-sponsor EnerVest Ltd. has acquired some $2.5 billion of assets in the Barnett shale in the last two years. EV Energy is positioned to expand its balance sheet following a divestment of approximately 150,000 net acres in the Utica shale. Attention on this deal has kept the MLP out of the buying arena for the near-term, but that should change by year-end when the deal is expected to be done.

“If not done as an asset swap, EVEP could be sitting on a $1.5- to $2-billion mountain of liquidity, assuming $10,000 to $20,000 an acre.”

Breitburn Energy Partners LP, Los Angeles, is also “open for business,” he said, having recovered from being forced to cut distributions during the economic downturn, and as evidenced by closing $660 million in deals since June 2011.

MLPs as a whole have about $4 billion in immediate revolving credit availability at their disposal, with more at the ready from the capital markets.

“As long as the capital markets stay open — and they are open — they can make deals. There are billions of dollars of (acquisition) potential from MLPs, and that is only going up.”

Growing and hungry. Already in 2012, upstream MLPs have acquired $6.7 billion in 27 deals. Bellamy projects by 2015, extrapolating from the MLP compound annual growth rate from 2006 through 2012, that upstream MLPs will consume $17.8 billion in transaction value on an estimated 54 deals in 2015.

“The opportunity set for MLPs and LLCs relative to the asset size right now is so huge,” Bellamy said. “Every shale well that is three to four years old, when they mature enough to have a sense of where production is going to be, probably fits an MLP’s acquisition metrics. Think about $250- to $500 billion in acquisition opportunities for MLPs.”

Using the same model, he expects the upstream MLP/LLC sector to approach $75 billion in enterprise value, compared with $36 billion today.

Since 2003, prior to becoming publicly traded entities, MLPs have acquired $21 billion in assets and paid on average $13.62 per barrel of oil equivalent (BOE) for proved reserves ($2.27 per thousand cubic feet equivalent), and $87,898 BOE per day ($14,650 per Mcfe) for flowing production.

While MLPs tend to be agnostic as to oil or gas, focused instead on stable returns, they are uniquely positioned to make gas transactions in today’s marketplace as a function of their ability to pay full price for the five-year forward strip, which they hedge.

“That’s what they can pay you,” said Bellamy. “They are fairly high PDP (proved developed producing reserves). They are unlikely to pay you full value for PUDs (proved undeveloped reserves).”

Also, as natural gas liquids are difficult to hedge for any length of time, MLPs are not able to pay full price for these assets. “You can’t manage the risks.”

Based on the “heft” of the MLP market, “you can expect to see PDP-oriented deals increasingly valued by what Linn and other MLPs can pay.”