Linn Energy LLC LINE.O will buy natural gas acreage in southwest Wyoming from BP America Production Co (BP.L) for $1.03 billion, its second such deal with the British company this year at a time when prices for the fuel have hit decade-lows.
Weak prices have prompted several companies to sell off natural gas properties, presenting a bargain for those willing to wait for a turnaround.
"Linn is very opportunistic and they are in a very good position to acquire assets from forced sellers," said National Securities analyst Boris Pialloux.
BP, which is raising billions of dollars to help fund the cost of the 2010 Gulf of Mexico oil spill, is selling all of its working interest in about 260 wells among other assets.
Linn, as a limited liability company, has a corporate structure that allows it to reduce its tax burden by passing on most of its cash flow to unit holders. This also provides a greater access to capital.
"Multiples for Linn are much higher than that of corporations. If they are going to issue stock, they have a much more expensive currency to buy assets," said Pialloux.
Houston-based Linn's distributions have more than doubled over the past six years. It paid $2.70 per unit in 2011.
Linn said the latest BP deal is expected to immediately add to distributable cash flow per unit.
Separately, Linn Co LLC, a company that will hold no assets other than Linn Energy units, filed with U.S. regulators to raise up to $1 billion in an initial public offering of shares.
"It will broaden the number of people who can buy into Linn. A lot of tax-exempt institutions cannot buy into an MLP. These institutions will be able to buy Linn Co shares," said Pialloux.
NAT GAS ASSETS
The BP properties in the Jonah Field, located in the Green River Basin, have proved reserves of about 730 billion cubic feet equivalent, of which 73 percent is natural gas and 23 percent natural-gas liquids.
"Linn paid $1.40/thousand cubic feet of natural gas equivalent (mcfe) of reserves versus year-to-date upstream master limited partnership average of $2.40/mcfe," Robert W Baird & Co analyst Ethan Bellamy wrote in a note to clients.
The company said it has hedged all of the acquired natural gas production through 2017.
The company earlier this year bought natural gas assets in Kansas from BP for $1.2 billion.
Chief Executive Mark Ellis told Reuters that Linn would spend up to $2 billion on acquisitions every year.
"Linn has grown by acquiring producing assets," said Eliecer Palacios, an energy sector specialist at investment bank Maxim Group.
"Their interest is in generating cash flow from these assets and distributing it back to shareholders," he said.
Linn said it expected to finance the BP deal, which will close by July 31, with borrowings under its revolving credit facility.
Shares of the company, which has a market value of $7.20 billion, fell 2 percent to $35.38 on the Nasdaq. (Reporting by Swetha Gopinath in Bangalore; Editing by Sriraj Kalluvila)