Reduces Oil and Gas Capital by Over 50%
"We are extremely pleased to announce a new strategic initiative today designed to allow LINN to be an active developer of assets with growth capital funded from a new financial partnership with GSO," said Mr. Ellis. "This agreement creates a dynamic alliance, combining world-class expertise from a highly respected investor with LINN's ability to acquire and develop oil and natural gas assets."Dwight Scott, Senior Managing Director of GSO Capital, commented, "We are excited to partner with LINN as it continues to grow its business. LINN is a leading operator with an exceptional undeveloped asset base, which is expected to generate significant value for the partnership." Strategic advantages for LINN:
- Allows LINN to develop assets without increasing capital intensity;
- Potential to add a steady and growing cash flow stream with no capital requirement;
- Increases LINN's long term ability to fund all oil and natural gas development capital and the distribution from internally generated cash flow;
- Mitigates drilling risk;
- Potentially broadens acquisition universe; and
- Upon meeting the return hurdle, provides incremental low decline production growth for LINN.
- Average annual production of 1,110 – 1,235 MMcfe/d
- 54% natural gas;
- 32% oil;
- 14% NGL;
- Overall decline rate of ~15%;
- Unhedged NYMEX oil price of $60 per Bbl;
- Unhedged NYMEX natural gas price of $3.50 per Mcf;
- NGL realization of 39% of NYMEX oil price, or approximately $23.40 per Bbl;
- Annualized distribution of $1.25 per unit;
- Does not consider potential upside associated with capital cost improvement as a result of low commodity prices;
- No assumed positive impact from acquisitions or the DrillCo Agreement; and
- Expected coverage ratio of 1.18x. LINN defines coverage ratio as net cash provided by operating activities after discretionary adjustments considered by the Board of Directors, divided by total distributions to unitholders.
The Company's decrease in oil and natural gas capital is approximately half in response to lower commodity prices and half as a result of the divestiture of its higher decline Granite Wash assets and the majority of its Midland Basin assets in the Permian Basin, as well as reduced investment in other areas across its portfolio. Capital will be focused on lower-risk development and optimization projects including steam flood enhancement and expansions in California, natural gas drilling in the Jonah Field, Hugoton Basin and Piceance Basin, non-operated drilling in the Williston Basin, as well as Cotton Valley and Bossier development in East Texas and North Louisiana. A significant portion of LINN's 2015 capital budget is dedicated to efficient and lower-risk optimization, workover and recompletion opportunities on existing oil and natural gas wells. Discretionary reductions for a portion of oil and natural gas development costs are estimated to be approximately $640 million, or 88%, of LINN's 2015 oil and natural gas capital budget.Hedging Update The Company is hedged approximately 100 percent on expected natural gas production in 2015, 2016 and 2017, net of expected natural gas consumption related to its heavy oil operations in California. For expected oil production, LINN is hedged approximately 70 percent in 2015 and approximately 65 percent in 2016. The Company has hedged natural gas differentials in certain producing regions but has not hedged any of its exposure to oil differentials. The Company does not directly hedge NGL volumes. As of year-end 2014, LINN's hedge book had an estimated mark-to-market value of approximately $2 billion. Liquidity Update LINN has current liquidity of approximately $2.2 billion. In December 2014, LINN and its wholly owned subsidiary Berry Petroleum Company, LLC ("Berry") received unanimous approval from a combined total of 45 lenders to increase LINN's borrowing base to $4.5 billion and reaffirm Berry's borrowing base at $1.4 billion. The maximum credit amount under LINN's credit facility is $4.0 billion and the commitment amount under Berry's credit facility is $1.2 billion. The maturity date for the LINN and Berry credit facilities, along with LINN's outstanding $500 million term loan, is April 2019.
Outlook for 2015LINN believes its decreased 2015 capital budget, reduced distribution and conservative projected coverage ratio, along with its significant hedge portfolio, approximately $2.2 billion of liquidity and proposed strategic alliance with GSO position the Company to regain its cost of capital advantage in the marketplace. "Despite today's challenging commodity price environment, we believe we are prepared to continue growing throughout 2015 and will look to take advantage of acquisition opportunities in the current market," said Mr. Ellis. "In addition, we are also in the process of potentially forming an additional alliance with private capital sources similar to the DrillCo Agreement with GSO but focused on acquisition funding. This potential new partnership would give us access to acquisition funding in down markets and diversify LINN away from traditional debt and equity capital markets." Today's announcement should position LINN to deliver an attractive yield given the current unit price and also position the Company for growth. The variables listed below demonstrate the potential coverage ratio upside and downside protection from the budgeted level of 1.18x given various scenarios:
- Oil prices between $50 - $95 produce coverage ratios between 0.95x – 1.98x
- NGL prices between $20 - $40 produce coverage ratios between 1.11x – 1.55x
- A 5% increase in production volumes produces a coverage ratio of 1.43x
- A 5% decrease in LOE and transportation expenses produces a coverage ratio of 1.31x
- A 5% decrease in capital costs produces a coverage ratio of 1.27x
Monthly Distribution and DividendLINN declared a monthly cash distribution of $0.1042 per unit, or $1.25 per unit on an annualized basis, for all of its outstanding units. The distribution will be payable January 15, 2015, to unitholders of record as of the close of business on January 12, 2015. LinnCo declared a monthly cash dividend of $0.1042 per common share, or $1.25 per share on an annualized basis, for all of its outstanding common shares. The dividend will be payable January 16, 2015, to shareholders of record as of the close of business on January 12, 2015. Financial Advisor Jefferies LLC acted as financial advisor to LINN for the DrillCo Agreement. ABOUT LINN ENERGY LINN Energy's mission is to acquire, develop and maximize cash flow from a growing portfolio of long-life oil and natural gas assets. LINN Energy is a top-15 U.S. independent oil and natural gas development company, with approximately 7.8 Tcfe of proved reserves (pro forma for announced 2014 trades, acquisitions and divestitures) in producing U.S. basins as of December 31, 2013. More information about LINN Energy is available at www.linnenergy.com. ABOUT LINNCO LinnCo was created to enhance LINN Energy's ability to raise additional equity capital to execute on its acquisition and growth strategy. LinnCo is a Delaware limited liability company that has elected to be taxed as a corporation for United States federal income tax purposes, and accordingly its shareholders will receive a Form 1099 in respect of any dividends paid by LinnCo. More information about LinnCo is available at www.linnco.com. ABOUT BLACKSTONE AND GSO Blackstone is one of the world's leading investment and advisory firms with approximately $284 billion in assets under management as of September 30, 2014. It seeks to create positive economic impact and long-term value for investors, the companies it invests in, the companies it advises and the broader global economy. Blackstone does this through the commitment of extraordinary people and flexible capital. Blackstone's alternative asset management businesses include the management of private equity funds, real estate funds, hedge fund solutions, credit-focused funds and closed-end funds. GSO, a division of Blackstone, is a leading credit-focused alternative asset manager, with approximately $70 billion of assets under management as of September 30, 2014. GSO has a global footprint with approximately 250 professionals among its offices in New York, Dublin, London and Houston. Further information is available at www.blackstone.com. Follow on Twitter @Blackstone. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS This press release includes "forward-looking statements." All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include, but are not limited to forward-looking statements about acquisitions, divestitures and trades, potential strategic alliances, timing and payment of distributions, and the expectations of plans, strategies, objectives and anticipated financial and operating results of the company, including the company's drilling program, production, hedging activities, capital expenditure levels and other guidance included in this press release. These statements are based on certain assumptions made by the company based on management's experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to the company's financial performance and results, availability of sufficient cash flow to pay distributions and execute its business plan, prices and demand for oil, natural gas and natural gas liquids, the ability to replace reserves and efficiently develop current reserves and other important factors that could cause actual results to differ materially from those projected as described in the company's reports filed with the Securities and Exchange Commission. See "Risk Factors" in the company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases. Any forward-looking statement speaks only as of the date on which such statement is made and the company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.
CONTACT: LINN ENERGY, LLC Investors & Media: Clay Jeansonne, Vice President - Investor Relations (281) 840-4193 Zach Dailey, Director - Investor Relations (713) 904-6547 Sarah Nordin, Public Relations & Media (713) 904-6605