Linn To Enter Large Kansas Conventional Gas Asset With BP Deal

Transaction Type
Sellers
Buyers
Announce Date
Post Date
Estimated Price
$1,200.0MM
Description

To purchase 600,000 contiguous net acres targeting Hugoton Basin in KS featuring 2,400 operated wells & 100% ownership of Jayhawk gas processing plant, gaining 110 MMcfe/d, 730 Bcfe proved.

The MLP Linn Energy LLC, Houston, (Nasdaq: LINE) plans to acquire Hugoton Basin properties in Kansas from BP America Production Co., a subsidiary of BP Plc, London, (London: BP) for $1.2 billion.

The deal includes approximately 2,400 operated wells and more than 600,000 contiguous net acres. The properties also feature 100% ownership of the Jayhawk natural gas processing plant, with significant excess capacity and more than 800 future drilling locations.

Production is 110 million cubic feet of gas equivalent per day (98% operated, 63% gas). Proved reserves are 730 billion cubic feet equivalent (81% proved developed producing).

Estimated 2012 adjusted EBITDA is estimated at $160 million and estimated 2012 maintenance capital is approximately $30 million to $40 million;

Linn chairman, president and chief executive Mark E. Ellis says, “This acquisition marks our entry into the largest conventional natural gas field in the U.S., and it is an excellent fit for our business strategy. This impactful transaction has a low decline rate of 7% and is expected to provide 110 million cubic feet equivalent of liquids-rich production that is 37% natural gas liquids.”

Linn entered hedging contracts for 100% of the gas production associated with this transaction through 2016, or approximately five years. The company used a combination of 50% swaps and 50% puts to hedge the natural gas volumes, which it says preserves significant upside if natural gas prices rise. In addition, Linn hedged 68% of the NGL production through 2016, or approximately five years, utilizing natural gas puts.

Linn recently received commitments from its lenders to increase its revolving credit facility from $1.5 billion to $2 billion.

BMO Capital Markets is financial advisor to Linn.

The deal is expected to close by March 30.