Linn Energy to Acquire an E & P Firm via $4.3 Bn Oil Investment

In a few days, Linn Energy will be finalizing a deal to fully acquire Berry Petroleum at a price of $2.5 billion.  Linn projects that its new oil investment will supplement current oil reserves and increase production by more than 30 percent.

The acquisition value, however, will actually sum up to about $4.3 billion as Linn will also be taking over Berry’s liabilities.

This is going to be Linn’s biggest buy-out transaction to date and will cause its oil reserves to go up versus gas reserves. The timing couldn’t have been better as the price of gas keeps going down owing to a supply glut in North America. New and better drilling practices, like hydraulic fracking, has made it easier for oil drillers to release gas deposits, creating a tremendous influx of gas supply.

Last year alone, Linn purchased BP’s Kansas gas reserves, paying the company more than $1 billion. It also disbursed another $1.03 billion to invest in BP’s Wyoming gas assets.

Linn expects a shift in its oil and gas reserve ratios, with oil rising to almost 55 percent of total reserves as it acquires Berry’s oil assets across Texas, California, Utah, and Colorado.

Meanwhile, the company’s production is expected to grow to approximately 240 million cft per day.

Linn’s advantage as an LLC (Limited Liability Company) is that it is not burdened by income taxes normally imposed on corporations.

An Ethan Bellamy specialist commented that Linn’s buying spree is not over yet.  It continues to scout for more oil assets that could eventually help expand oil production.

This is the first ever buy-out of an E & P firm by an upstream LLC such as Linn.  Several upstream or midstream LLC-structured oil firms are expected to invest in oil assets and duplicate Linn Energy’s buy-out strategy.