Linn Energy LLC (NASDAQ: LINE) and LinnCo LLC (NASDAQ: LNCO) said late Sept. 18 they would trade Permian Basin properties to ExxonMobil Corp. (NYSE: XOM).

Linn would receive operating interests in California's South Belridge Field in return.

In the deal, Linn gets ExxonMobil's interest in the Hill Property located in the South Belridge Field, which is currently producing about 3.4 thousand barrels of oil equivalent per day (Mboe/d)--nearly all oil--with a shallow base decline of about 10%.

The swap echoes a May trade in which Linn gave up Permian Basin acreage to ExxonMobil and its subsidiary XTO Energy Inc. for operating interests in the Hugoton Basin.

In the Sept. 18 deal, Linn estimated total resource potential for the Hill Property to be about 67 MMboe, largely all of it oil. Proved reserves stand at about 27 MMboe, 51% of which is developed. Linn has identified significant upside potential through optimization projects, increased steam injection and extensive down spacing from more than 300 future drilling locations.

ExxonMobil will gain 17,000 net acres prospective for horizontal Wolfcamp drilling in the Midland Basin and about 4.7 Mboe/d of current production. Proved reserves are estimated to be 19 MMboe. Additionally, ExxonMobil will receive about 800 acres in the New Mexico Delaware Basin.

"Our California team has done an excellent job this year of growing Diatomite production and managing our legacy fields," said Mark E. Ellis, LinnCo’s chairman, president and CEO. "We are very excited to add ExxonMobil's Hill Property to our inventory of development opportunities in the San Joaquin Valley. Today's trade announcement is another strategic portfolio improvement for our company that reinforces our commitment to mature, long-lived oil and natural gas assets with low and predictable decline rates."

Linn expects the trade to give it excellent mature assets with a decline rate of about 10% and reserve life of about 22 years.

Additionally, Linn said:

  • The Hill Property generates more operating cash flow than Permian Basin properties traded and is expected to be accretive to excess of net cash provided by operating activities after distributions to unitholders;
  • Tax efficient exchange of assets; and
  • Credit positive from increased cash flow and reserves.

Following the closing of this transaction with ExxonMobil, Linn will have remaining production of about 10 Mboe/d and about 13,000 net acres in the Midland Basin that is prospective for horizontal Wolfcamp drilling.

"We continue to see strong interest in the market for a trade or sale of these remaining assets and believe there is significant additional value for our unitholders," Ellis said.

In the May transaction, Linn was to receive a portion of ExxonMobil's interest in its Hugoton Field with total reserves of about 700 billion cubic feet equivalent, with 80% natural gas. The field is comprised of more than 500,000 net acres and has about 2,300 operated wells.

In exchange, ExxonMobil was to receive about 25,000 net acres in the Midland Basin located primarily in Midland, Martin, Upton and Glasscock counties, Texas. ExxonMobil obtained about 2 Mboe/d of current production, and Linn will retain about 3 Mboe/d of production from the aforementioned acreage. Additionally, ExxonMobil will receive about 1,000 acres in Lea County, N.M.

The Sept. 18 transaction with ExxonMobil is subject to satisfactory completion of title and environmental due diligence, as well as the satisfaction of closing conditions. The transaction is expected to close in the fourth quarter of 2014 with an effective date of June 1.

RBC Richardson Barr was financial adviser to Linn for the transaction.