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Executives

Clay Jeansonne - Vice President, Investor Relations

Mark Ellis - Chairman, President, and Chief Executive Officer

Kolja Rockov - Executive Vice President and Chief Financial Officer

Arden Walker - Executive Vice President and Chief Operating Officer

Analysts

Praneeth Satish - Wells Fargo

Kevin Smith - Raymond James

John Ragozzino - RBC Capital Markets

Ethan Bellamy – Baird

Jeremy Tonet – JPMorgan

Noah Lerner - Hartz Capital

Chris Sighinolfi - UBS

Jeff Robertson – Barclays

David Amoss - Howard Weil

Boris Pialloux - National Securities

James Spicer - Wells Fargo

Michael Peterson - MLV & Company

Adam Leight - RBC Capital Markets

Greg Brody - JP Morgan

Abhishek Sinha - Bank of America Merrill Lynch

Tim Doherty - Crédit Agricole

Douglas Clifford - Omega Advisors

Dan Guffey - Stifel

Gary Stromberg - Barclays

Linn Energy, LLC (LINN) Q4 2012 Earnings Conference Call February 21, 2013 11:00 AM ET

Operator

Good morning. Welcome to Linn Energy’s Conference Call to discuss its fourth quarter and full year 2012 earnings and its recently announced acquisition. Today’s call is being recorded. At this time, I will turn the call over to Clay Jeansonne, Linn Energy’s Vice President Investor Relations for some opening remarks. Please go ahead.

Clay Jeansonne

Thank you for joining our conference call today to discuss our fourth quarter and full year 2012 earnings and our recently announced acquisition. In a moment, I’ll introduce Mark Ellis, our Chairman, President, and Chief Executive Officer. But I first need to provide you with disclosure regarding forward-looking statements that will be made during this call.

The statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, and assumptions are forward-looking statements. Please note that the company’s actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control. Additional information concerning certain risk factors relating to our business, prospects and results is available in the company’s filings with the SEC, including our Form 10-K ending December 31, 2012, which will be filed today, and any other public filings and press releases.

Additionally, during the course of today’s discussion, management will refer to adjusted EBITDA as an important metric for evaluating the company’s performance. Please note that adjusted EBITDA is a non-GAAP financial measure, which is reconciled to its most directly comparable GAAP measure in the earnings press release issued this morning.

Supplemental financial and operational information, including the company’s statement of operations, selected balance sheet data, and guidance table has been posted to Linn Energy’s website at www.linnenergy.com in the Investor Relations center under presentations. Following management’s prepared remarks, we’ll take your questions.

I’ll now turn the call over to Mark Ellis, Linn’s Chairman, President and CEO.

Mark Ellis

Thanks, Clay and good morning. Joining us today from Linn are Kolja Rockov, Executive Vice President and Chief Financial Officer and Arden Walker, Executive Vice President and Chief Operating Officer.

Now, I am really excited to talk to you about the announcement we issued this morning regarding our definitive merger agreement to acquire all of Berry Petroleum Company’s outstanding shares for total consideration of $4.3 billion. This groundbreaking transaction represents the first ever acquisition of a public C-Corp by an upstream LLC or MLP. And we are very pleased to have reached this agreement with Berry and believe it provides significant value to investors of all companies. We continue to adhere to our core strategy of acquiring mature long life assets and Berry’s high margin low decline asset base is an excellent strategic fit for our current portfolio. This transaction has further scale to our existing asset base while significantly increasing our exposure to oil. As a combined company, we will increase our presence in California, the Permian Basin, East Texas, and the Rockies and expand into an attractive new core area in the Uinta Basin. We expect this transaction will close on or before June 30, 2013.

Berry’s current production is approximately 40,000 barrels of oil equivalent per day with a decline rate of approximately 15%. The reserves are approximately 75% oil, which drives a meaningful increase in our liquids exposure from 46% to 54% of proved reserves as of year-end 2012. Beyond increasing Linn’s current proved reserves by approximately 1.7 trillion cubic feet equivalent or 34%, we have identified probable and possible reserves of approximately 3.8 trillion feet cubic equivalent, which provides significant upside potential for the future.

Integration is a core competency at Linn. We excel at quickly integrating acquired assets and welcoming new employees into our culture. We have great respect for what the Berry management team has accomplished and considered that Berry employees to be an important part of this transaction. We expect to realize the benefits of this acquisition quickly, and we believe that together we will be positioned for great success in the future.

Now, I’d like to turn to our results, our recent results. Linn had another outstanding year in 2012. In addition to our successful organic growth program, we closed approximately $2.9 billion in acquisitions and joint venture agreements, which helped increase our proved reserves by 42% to 4.8 Tcfe. Our ability to quickly integrate assets into our operations is a big driver of our success. In addition, Linn demonstrated its ability to grow organically by adding 709 Bcfe of proved reserves primarily from the Granite Wash horizontal drilling program and by adding proved undeveloped reserves in the Granite Wash, Green River, and Hugoton basins. The company plans to continue to focus its capital programs on the Granite Wash and Permian Basin regions and expand into the Green River Basin this year.

For 2012, Linn’s reserve replacement ratio was 150% at a finding and development cost of $2.88 per Mcfe, excluding acquisitions. Including acquisitions, the reserve replacement ratio was 869% at a replacement cost of a $1.77 per Mcfe. These reserve replacement results exclude revisions due to both lower commodity prices as compared to year end 2011 and the removal of low-value proved undeveloped reserves that are subject to the SEC five-year development rule.

During the fourth quarter, we drilled an additional 14 operated horizontal Hogshooter wells in the Texas portion of the Granite Wash play. We have now drilled and completed 26 Hogshooter wells in Texas with an average initial production rate of approximately 2150 barrels oil equivalent per day comprised of 1500 barrels per day of oil, 385 barrels per day of NGLs, and 2.4 million cubic feet a day of natural gas. We have tested these three separate production zones within the Hogshooter interval in Texas and are encouraged by our early results in the Mayfield area of Oklahoma. We have plans to invest net capital this year of approximately $400 million in the Granite Wash drilling program.

In total, we will invest $1.1 billion in our oil and natural gas capital program for 2013 with a focus on oil and liquids-rich development projects. Overall, the company will drill or participate in about 500 wells. And the breakdown of our capital program includes 35% to the Granite Wash to drill or participate in about 80 horizontal wells, 18% to the Permian Basin to drill or participate in about 100 wells, 12% to the Green River Basin, 9% to the Cleveland play, and 6% to the Bakken play.

We expect to grow production by more than 45% with approximately 10% from organic projects alone. The midpoint of guidance indicates average production of approximately 827 million cubic feet equivalent per day for the first quarter of 2013 in an average of 985 million cubic feet equivalent per day for the full year 2013, which includes only six months of contribution from the Berry acquisition.

Now, to help finance our growth and potentially open the door to accretive C-Corp acquisitions such as the Berry transaction, we completed the very successful IPO for LinnCo in October 2012. This $1.3 billion transaction represented the largest E&P IPO of all time. As we stated last quarter, we believe LinnCo is a game changer for the company underscored by today’s very significant acquisition announcement. Now I want to take a moment and thank all our employees for the energy they have put in to making Linn a top 15 independent E&P company. Our employees are dedicated to our future growth and are an integral part of our success and I’m excited to see what we can accomplish together in 2013. I will now turn the call over to Kolja for his financial updates.

Kolja Rockov

Thanks Mark. Today is the day you all have been awaiting for, last night we executed a merger agreement to acquire Berry Petroleum. The LinnCo IPO late last year was a true game changing event for many reasons, it greatly expanded our investor universe by attracting institutional and retail investors by offering them a simpler way to own Linn Energy but today it's further evidenced of the strategic significance of the IPO. Today we have unveiled a structure that allows Linn to C-Corp with a tax free exchange of shares that does not trigger an immediate payment of tax.

As part of the transaction Berry will be converted into an LLC and then it's assets will be contributed to Linn in exchange for Linn units. This arrangement allows Linn to own Berry’s assets in a pass through entity without any immediate payment of tax but before I dive into the myriad of positive implications that will cover our fourth quarter and year end 2012 results. For the fourth quarter adjusted EBITDA increased by 35% to 379 million and 40% to 1.4 billion for the full year 2012.

On a per unit basis our distributable cash flow was $0.77 per unit for the fourth quarter and $3.30 per unit for the full year 2012. When compared to our quarterly cash distribution of $0.72.5 per unit our annualized distribution of $2.90 per unit, we achieved a distribution coverage ratio of 1.07 times for the fourth quarter and 1.14 times for the full year 2012. We delivered adjusted net income for the fourth quarter 2012 of $0.41 per unit and $1.44 per unit for the full year 2012.

Our strategy of acquiring mature oil and gas assets across the U.S. has been very successful, during our company’s history we have made 57 acquisitions totaling approximately $10 billion which is resulted in distribution growth of 81% since our IPO in 2006 but today we have broken new ground with a help of another visionary management team at Berry Petroleum. Just like mature oil and gas assets belong in MLP, we believe C-Corp’s with mostly mature assets also belong in MLP. We very much thank the Berry management and board for giving us the opportunity to demonstrate how much value can be created by tax efficiently converting a C-Corp with the right assets into an MLP/LLC.

Our combination is expected to result in significant accretion distributable cash flow per unit and the first year of following the closing of the acquisition accretion is estimated to be greater than $0.40 per unit. As a result Linn plans to recommend to Linn and LinnCo’s Board of Directors an increase in the Linn’s distribution of 6.2% and an increase in LinnCo ’s dividend of 8.5%.

Including this recommended increase Linn would have generated 93% distribution growth since IPO. Previously we guided that LinnCo’s 2013 tax liability will be $0.06 for 2013. We now believe based on current assumptions around commodity prices and capital spending that there will be no cash taxes for 2013 and therefore LinnCo dividend is expected to increase 2% beginning in the first quarter of 2013.

There is detailed table outlining expected quarterly distributions for both securities included in our acquisition press release issued this morning. Accretion is expected to increase further in 2013 and 2015 but it is too early for us to give specific guidance to that effect. Well what we can say is that after transaction closed which is expected on our before June 30, 2013 our average coverage ratio for the second half of the year is expected to be 1.2 times after taking into account the recommended distribution and dividend increases.

Another significant positive is that this transaction is 100% stock consideration, the result is a material improvement in Linn’s debt metric, debt to EBITDA for the second half of the year is expected to be approximately 3.6 times and in addition we expect our greatly expanded size to also be viewed as a credit positive. We expect that this transaction will trigger change of control provisions in the industries governing Berry’s existing senior notes.

These provisions and title holders of the notes will receive 101% at par for the notes plus accrued in unpaid interest from a changing control offer related to each series of notes. Linn expects any of Berry’s notes not tendered pursuant to the change of control offers to remain outstanding following the transaction. This subject to any opportunistic refinancings of such notes we may pursue in the future based on market conditions. Our current plans are to pay down the amounts outstanding under Berry’s revolver by using Linn’s revolver if necessary to create additional flexibility in the basket.

I want to comment on some recent confusion that has risen regarding our hedge book and hedging strategy. We firmly stand behind not only our hedging strategy, but also the validity of our financial statements. A more detailed explanation was posted to our website under Presentations last Friday and also filed was an 8-K with the SEC. In addition, we have gone an extra step and increased our disclosure in our 2012 10-K to provide more detail around our non-GAAP metrics.

To be clear, we used mark-to-market counting in our GAAP financial statements, which expenses the option premiums through our income statement. As we think about non-GAAP distributable cash flow per unit, we believe the premiums have no impact on our ability to pay our future distributions and view them as part of an investment in our business or said another way capital. Consistent with our regular practice of hedging acquisitions, we have partnered with Berry on a strategy to hedge production associated with this transaction. Berry already has significant oil hedges in place which cover more than 60% of the expected oil production for the rest of 2013.

Over the coming months, Berry will hedge additional oil volumes at our direction to become substantially hedged for multiple years into the future. We do not currently plan to hedge Berry’s natural gas production as there is a natural hedge in Berry’s consumption of natural gas and its steam flood operations in California. We continue to anticipate a very active year for acquisitions during 2013 and we are very enthusiastic about both asset and C-Corp acquisition opportunities.

I will now turn the call over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Praneeth Satish from Wells Fargo.

Praneeth Satish - Wells Fargo

First, congratulations on the acquisition. Just wondering if you see any cost synergies from the deal and if so whether that’s included in guidance?

Mark Ellis

Yeah, we really look at this transaction as being focused on creating growth and distributable cash flow is the primary focus here. So, I mean, that’s what’s really driving us in the transaction in the adding of the assets together and the focus there. As far as synergies, obviously there will be some over time, but that’s not our key focus.

Praneeth Satish - Wells Fargo

Okay. And I am looking at the guidance you provided with and without the acquisition and it looks like maintenance CapEx for the Berry assets is in the 35% of EBITDA range, can you just comment a little bit on how you are thinking about that number?

Mark Ellis

Maintenance is around I think we’ve got in there first half year about $120 million, and full year is about $240 million. And utilize the same context for accessing maintenance on their assets like we do on our own, from a standpoint of replenishment of the reserve base and based on the quality of their asset and their investment opportunities.

Praneeth Satish - Wells Fargo

Okay, great. Thank you.

Operator

Thank you. Our next question comes from Kevin Smith from Raymond James.

Kevin Smith - Raymond James

And congrats on a great deal, California assets aren’t easy to come by.

Mark Ellis

Yeah, thanks Kevin.

Kevin Smith - Raymond James

Would you mind walking me through the tax consequences of converting Berry into an LLC, did they have enough NOLs to offset the gain or how should we think about that?

Kolja Rockov

Kevin, I don’t want to get into a protracted discussion on that. I mean, we can take it offline, but generally what’s going on here is it’s really a holding company rework of the target, which allows us to convert the target to a pass-through entity, which is then really allowing Linn to acquire the target and step up the basis in a non-taxable transaction, but because Linn is generating so much shield now, because of that stepped up basis and because of all the other items that generate that shield, it’s final to LinnCo, and we don’t expect there to be any real material tax consequences outside of the range that we indicated going forward, which is kind of that 2% to 5%. And I don’t know you want more detail, I am happy to give it to you, but I just don’t want to get into a really long discussion about it but generally it's look it's a tax-free exchange to Berry which is great. It allows us to take C-Corp assets and put those assets actually into our pass through entity and it doesn’t generate any material tax impact to LINNCO shareholders.

Kevin Smith – Raymond James

Okay well maybe and go by a different way, is this the structure you described, is this something new? I mean so is it not then dependent like net operating losses at the C-Corp level for Linn?

Mark Ellis

No it's not, it's fairly straightforward I mean it's, as far as I know it's new to the MLP sector because the MLP sector really hasn’t had vehicle like LINNCO in it, I mean there is different structures obviously but we feel like ours is fairly unique and allows us to take advantage of this structure but the structure itself is not something new, it's just new to the sector.

Kevin Smith – Raymond James

Okay so going forward you didn’t imagine let’s say acquire another E&P Corp it will be similar that they would mean tax linkage?

Mark Ellis

That’s correct. I mean if you look at each situation by case by case basis but if you’re asking me is this a repeatable process? Yes it is.

Operator

Thank you. Our next question comes from John Ragozzino from RBC Capital Markets.

John Ragozzino - RBC Capital Markets

Kolja with respect to acquired assets you gave us a little bit of detour on the hedging strategy that you have in place, do you expect that a similar type of I guess capital investment on the acquired assets for delivered projects as you would for just say a straight asset package cause the 10% type of (inaudible).

Kolja Rockov

What we’re doing right now is all swaps at this point in time and as all of us know or most of us know on the call we have been kind of embroiled in a fire storm around puts and issues that we feel are meaningless but look we stand behind everything we have done in the past. We feel like being a 100% hedged is a great outcome for us and we feel like that’s resulted in better access to capital in the lower cost of capital. In the coming weeks or months we’re going to determine whether continuing to buy puts results in that same equation because you know at the issue is if we continue to buy puts and it causes all this controversy and lowers our assets to capital and raises our cost to capital then obviously we would have to think twice about the market impact of doing that but bottom line you stand behind what we have done in the past and going forward we don’t feel compelled to continue to do it if that’s the way the market feels about it. So, in the short term we’re going to stick to swaps and we will just see how this thing settles out but that’s the way we see it.

John Ragozzino - RBC Capital Markets

With respect to Berry’s production what percentage is actually from you entered black wax (ph) and what’s pricing like also if you could comment on refinery capacity for that type of crude in the area right now?

Mark Ellis

Around 25% of their production base is coming from the Quanta at this point in time and about 37% of their total reserves are in the Quanta. They are working very diligently I mean the price profile there in terms of working on marketing aspects of that crude, there is tremendous growth potential in that particular play. We got a lot of drilling opportunities in, the marketing is one of the key pieces going forward and which to maintain and create value there.

John Ragozzino - RBC Capital Markets

Can you give me a bump or kind of what the differentials look like?

Mark Ellis

It's around 75% or 9 (ph) max right now.

John Ragozzino - RBC Capital Markets

Great and then just one quick last one for moving to the op side of things. First results on the Oklahoma side of (inaudible) looks pretty darn good, it's do you have any ideas for like targeting number well they will put there this year or have you done full assessment work to get an inventory?

Mark Ellis

Yeah we’re still in the process of evaluating that, we got our first well down as we talked about, actually we have first two wells down. We’re completing the second one right now. We’re very encouraged by what we’re seeing out there but it is early deep wells that we’re drilling this year, initial wells are fairly scattered so it's going to take a bit of time before we’re going to really have a good inventory number four maybe next quarter we will have a little bit in our field for that but everything we’ve seen so far we’re very encouraged. We like to zone that we’re getting into in this particular area and it compares very favorably to the Texas side.

John Ragozzino - RBC Capital Markets

Alright, thanks very much guys. Congrats once again.

Mark Ellis

Thanks John

Operator

Thank you. Our next question comes from Ethan Bellamy from Baird.

Ethan Bellamy - Baird

Congratulations. What is the breakout fee please?

Mark Ellis

It’s 3.25%.

Ethan Bellamy - Baird

Of the total deal transaction.

Mark Ellis

No, the equity component.

Ethan Bellamy - Baird

Okay. With respect to one-time transaction fee that are going to show up and once what are those look like and are you expecting any large severance costs around the close?

Kolja Rockov

Yeah, I don’t know if we can give you guidance around the severance cost just yet, but transaction costs are kind of magnitude would be $40 million to $50 million.

Ethan Bellamy - Baird

Okay. Do you need to wait for the Berry transaction to close before you get out there and hunt for other deals that are like this and potentially announce those as well?

Mark Ellis

Not necessarily.

Ethan Bellamy - Baird

Okay. And then NGL price realizations remained fairly weak, can you give us an insight into what this delta is between Conway posted prices and what you guys realized, it was a little bit bigger delta than what I was looking for?

Mark Ellis

Yeah, I mean I think look those two hubs have clearly been converging over time, which we have benefited from although we are in the process of moving to Mt. Belvieu. So, at the end of the day, NGL prices have actually been ticking up for us in the last quarters and months and whatever. So, that’s a positive trend. Where it ultimately settles out is really anybody’s guess, but we are glad to see it moving upward.

Kolja Rockov

Yeah, I might just add on to that, we talked at the end of last year that we are working on our gas contracts or gas processing contracts up there in the Granite Wash. We have at this point put three new contracts in place to replace the last year’s contracts that expired. And those contracts provide a significant exposure to the Mt. Belvieu market, which will, at the end of the day, increased our total NGL price.

Ethan Bellamy - Baird

Okay. What’s the sexiest thing in the Berry portfolio from your perspective, is it the work at the (inaudible)?

Mark Ellis

Yeah, I mean here is the thing I would say about their assets. Obviously, it’s a great fit for us, the nature of the properties, the decline rate of the properties, the upside potential. California assets are a very nice addition and not just the properties, the technical knowledge that, that organization has. They have been in business out there for over 100 years. So, there is a tremendous amount of technical talent there. The knowledge of those plays is extreme. We have a small piece of operation in California. So, this is a very big addition for us and will be a dominant portion.

I answered an earlier question about the role of organization, I would tell you this, majority of their properties throughout the organization are somewhat unique to us. The only place that we have common ownership is probably the Permian Basin. And we are both in the Wolfberry play there. So we are really adding several unique areas and an awful lot of strong technical talent to this organization. The one thing different about doing a C-Corp that I like a lot typically we do asset deals, we get operating personnel, we really don’t get the technical talent as well to go along and develop those assets. And this in a C-Corp transaction we get access to both field people as well as the highly talented workforce that knows how to exploit those assets. So, it’s really efficient from that standpoint. So, from a targeting standpoint, any of the oil-rich assets that they have I think are very attractive to us.

Ethan Bellamy - Baird

Okay, I am going to go cancel my subscription to Berens now. Thanks and congrats guys.

Mark Ellis

Thank you.

Operator

Thank you. And our next question comes from Jeremy Tonet from JPMorgan.

Jeremy Tonet - JPMorgan

Hi, congratulations again on the deal. My question is with regard to the puts, I was hoping that maybe you could expand this a little bit more on the comment, you said as far as if you decided tomorrow to discontinue the put premium spending if that would have what impact if any that would have on future DCF?

Mark Ellis

They would have no impact on future DCF. Every put premium that we paid has already been paid for with cash. So, all we have left to do is realize the benefit if any.

Jeremy Tonet - JPMorgan

Great, that’s it for me. Thank you.

Mark Ellis

Thanks

Operator

Thank you. Our next question comes from Noah Lerner from Hartz Capital.

Noah Lerner - Hartz Capital

This might be somewhat of an obtuse question, so I apologize in advance if it is but relating to the announced deal and noise that we all dealt with over the weekend on Monday and I guess on Tuesday, was the price contingent, I’m just curious how the one in a quarter units per share was derived and if we have done base on some kind of average price over previous look back period with market gyrations might have had an impact that actually made the price a little bit steeper than it otherwise would have been.

Mark Ellis

I don’t really want to answer that question to directly, no, I mean just think that at the end of the day we had a target accretion level and we offered an exchange ratio to Berry in that regard and obviously they had a number that they wanted to hit in terms of value for the net assets that they are contributing to the transaction and they also effective premiums in the marketplace and at the end of those negotiations we ended up with a number that we both thought it was fair agreed to it.

Noah Lerner - Hartz Capital

Could you comment at what point in time you kind of came close to having that agreement, was it over the weekend was it before the weekend and other things have you worked out am I getting pushed into the weeds (ph)?

Mark Ellis

I think for that you just need to wait for the proxy to be filed and there will be a detailed account of when who did what to whom.

Operator

Thank you. Our next question comes from Chris Sighinolfi from UBS.

Chris Sighinolfi - UBS

Just a quick question on potential refinancings, Kolja appreciate your commentary about paying down some of the revolver at Berry. I do look at I think three senior note issuances they have you know highest coupons north of 10% I think that expiries next year. Just curios given the positive things you said about the leverage metric at Linn post the deal you know what the appetite to review some of what Berry has out and what you think given present prevailing rates a new Linn and which would be I think it's about a year since your last one.

Mark Ellis

Right, no, look it's a huge opportunity for us in the long term, in the short term we don’t feel compelled to do anything quickly. We’re just going to try to evaluate all of our options but the credit quality of Linn clearly improves as a result of these transaction and we want to make that known to the marketplace, known to the rating agencies and ultimately yes I think there will be interest cost savings is part of refinancing’s and really the way we look at it going forward is should we do any future C-Corp transactions. We’re really in a mode of almost collecting high yield bonds and having a great REFI (ph) opportunity and the future was really just generates additional accretion over and above what we’re generating with the assets alone.

Operator

Thank you. Our next question comes from Jeff Robertson from Barclays.

Jeff Robertson – Barclays

Follow-up what you just talked about is any of the potential cost savings from refinancing factored into the guidance that you all have pro forma for the second half for Berry?

Mark Ellis

No it is not.

Jeff Robertson - Barclays

Okay and can you just comment on what you think the Linn revolver might look like pro forma or what the borrowing base would be and?

Mark Ellis

Our first Linn capacity is kind of $4.5 billion to $5 billion without Berry, will they be on a pro forma basis I’m not sure, obviously higher and then you know what we’re going to do with how we’re going to size our revolver and structure it it's kind of too early to say we got to get into discussions with our banks in the coming months.

Operator

Thank you. Our next question comes from David Amoss from Howard Weil.

David Amoss - Howard Weil

Mark I just wanted to pick your brain on the Permian specifically I mean you got acreage in the heart of the Midland basin, Berry’s got acreage right on top of you. How do you view that asset and what’s going around you horizontally and is there a point where the valuation just gets so high that you consider monetizing at least that portion of the asset?

Mark Ellis

We still like the opportunity that’s out there, I think in our reviews with them technical reviews we’re seeing that play about the same way. There are some unique spots over (inaudible) county I think that are probably some of the better performing areas there. We’re both kind of watching what’s going on in the area in terms of the horizontal activity either in the Cline shale or in the horizontal Wolfcamp play, and there might be some potential there. But I don’t really see that as a divestiture candidate at this point in time, we actually like that play quite a bit.

David Amoss - Howard Weil

Okay, thanks. And then moving on I mean, can you just give us – you have obviously looked at a bunch of deals in the last six months, 12 months, can you give us kind of a generalization of the M&A market as you see it going forward?

Kolja Rockov

Well, I mean on the asset side, I know you are talking about M&A market. On just the pure asset side, we think it’s still going to be a very robust year for 2013. We’ll still continue to be active there. In terms of C-Corp, so obviously we have looked at a lot of different opportunities there and evaluate which ones will be really good fits for us. And we are very pleased with the Berry transaction, I think it’s outstanding. So, from an asset standpoint, we have always said we felt like there was anywhere from $20 billion to $30 billion of assets that will come to market over the course of the next 18 months. And we still feel confident that will happen. We might have a little bit of a slow start this year from an asset standpoint, but I think it will pick up as we go through the year.

David Amoss - Howard Weil

Okay, great. Thanks for the color. I appreciate it.

Kolja Rockov

You bet. No problem.

Operator

Thank you. Our next question comes from Boris Pialloux from National Securities.

Boris Pialloux - National Securities

Good morning and thanks for taking my question. Congratulations for the deal. I just have like two quick questions. The first one is regarding, it’s side business, but electricity sales in California, are you going to continue this type of business? And second is that a business which could be expanded outside California?

Mark Ellis

Really, that’s kind of, I don’t want to call it a byproduct business, but it’s not our core business out there, but it’s the cogeneration. And we actually have some electrical sales out of our existing California assets. Really, I mean, I think that continues on. It continues as a part of our core operations, but it’s not really an area of focus for us from a growth standpoint.

Boris Pialloux - National Securities

Okay. And then second question is regarding the impairment you had like $276 million impairment long life, where were these assets?

Kolja Rockov

Yeah, those were properties – they are gassy properties in the Mississippi Shelf area of Oklahoma. Very, very small amount of value on those assets and they just had very low reserves on them as well.

Boris Pialloux - National Securities

Okay, excellent. Thank you.

Mark Ellis

Thank you.

Operator

Thank you. And our next question comes from James Spicer from Wells Fargo.

James Spicer - Wells Fargo

Hi guys. It sounds like this may not be an issue, but don’t Berry’s bonds have restricted payment baskets that could potentially limit Linn’s ability to pay off distributions?

Mark Ellis

They do. And I tried to kind of address that in my prepared remarks, but we feel like we have plenty of flexibility under the basket, particularly because we can take borrowings under Linn’s credit facility and repay portions of Berry’s facilities. So, it’s really the same. You are just moving the dollars from one hand to the other, which creates the flexibility you need in the basket to continue the distribution. That’s not the optimal structure. Obviously, restructuring the notes in the long-term is the optimal structure, but in the short-term, it’s a pretty easy equation to solve for and we see no issue with it.

James Spicer - Wells Fargo

Okay, that’s helpful. Thank you.

Operator

Thank you. Our next question comes from Michael Peterson from MLV & Company.

Michael Peterson - MLV & Company

Good morning. I would like to begin this morning by congratulating you on today’s transaction, not just because of the target, but also because of the structure that you have put in place for the last year, I think it has broad implications for the whole sub-sector?

Mark Ellis

Thank you.

Michael Peterson - MLV & Company

Regarding the transaction this morning, if you could provide a little bit of color on the 2013 development program, particularly in the second half of the year with expanded asset portfolio, how much your prioritization in terms of development projects change?

Mark Ellis

Yeah, Michael at this point in time, the way we have modeled it for ‘13 is really just combining the two entities based on their existing business plans. Obviously, as we go forward and approach the closing of the transactions, we will look really hard at the right opportunity set in terms of a capital standpoint. I would expect to see the combined entity and any recast of capital have more impact in ‘14 than in the second half of ‘13.

Michael Peterson - MLV & Company

Okay, helpful. So, we can think of it in terms of pro forma for ‘13?

Mark Ellis

But their programs, if you look at their programs, they are focused on key plays, their Diatomite play, the Permian play, and of course their Uinta play are their primary focuses, which are all very oil-rich plays. We obviously are focused on oil as well as liquids-rich. I think they glean quite well together, but really look for ‘14 to be the first time you see an optimized capital program for the combined entities.

Operator

Thank you. Our next question comes from Adam Leight from RBC Capital Markets.

Adam Leight - RBC Capital Markets

On the structure is Berry going to be kept in a separate subsidy area initially or is it going to be merged into?

Mark Ellis

It will be merged into but it's separate with respect to the bonds and that’s something that I can take offline with you and give you a plenty of details on.

Adam Leight - RBC Capital Markets

And rating agencies are they appointed all yet or is this new to them?

Mark Ellis

It is new to them.

Adam Leight - RBC Capital Markets

Okay and then lastly on the just looking at the whole portfolio I know you talked about the Permian but you have historically have not been a divesture of much as you get into potentially more development opportunities for the things in the portfolio as combined maybe not specifically but however you want to address that might and you’re looking harder at potentially monetizing some assets at this juncture.

Mark Ellis

Adam I really don’t think we have a whole lot of things that even fall into that bucket to tell you the truth, I mean we have been pretty careful with what we have acquired and broaden the mix as you know earlier in our life cycle we divested some things back in the ’08 timeframe and maybe early ’09 that really didn’t fit our business model but this point in time and even at the things I look at from a Berry standpoint everything fits pretty well so we’re like what has come in to us as a result of the transaction.

Operator

Thank you. Our next question comes from Greg Brody from JP Morgan.

Greg Brody - JP Morgan

Just sort of three question for you first one strategically what is it about the LinnCo structure that prevented and it's a bigger question is why couldn’t Berry have done themselves and is there something unique about the LinnCo’s – Linn Energy structure that allows you to be more competitive versus company interested in distribution themselves.

Mark Ellis

Well I think don’t take this as a complete definitive answer but I think it's easier for them to achieve the tax free structure by merging like LinnCo than it is to create your own MLP and I think that’s one of the key strategic advantages to what we have here.

Greg Brody - JP Morgan

And then just couple of bond questions, so just a structure of the transaction it looks like the second half is after the deal closes you contribute from LinnCo to Berry to Linn Energy as an LLC, any of these you can summarize, anything in the ventures that would restrict that?

Mark Ellis

No obviously we have vetted all of these considerations early and we’re very confident in the way we structure it and look I think there is a lot of questions around it so as I’m thinking about it we’re going to put out a presentation regarding the transaction in some of these nuances and we will provide that kind of debt.

Operator

Thank you. Our next question comes from Abhishek Sinha from Bank of America Merrill Lynch.

Abhishek Sinha - Bank of America Merrill Lynch

I had a quick question on the maintenance CapEx why is that relatively so high versus the normal like the 25% or so?

Kolja Rockov

We have made this CapEx on the base assets at a similar run-rates we were in the fourth quarter, when you look at the Berry assets obviously it's early in our modeling of those assets. They tend to be oily we do look at that from the standpoint of the ability to replace reserves and production and consist the methodology for what we do on maintenance on the Linn side currently and we get the numbers around $240 million as Mark mentioned earlier.

Abhishek Sinha - Bank of America Merrill Lynch

And just as a follow-up you mentioned about that you might still open to more Nielsen (ph) in 2013 so what kind of leverage metric that EBITDA you have a target in mind?

Mark Ellis

Well I think our target has been around 300.5 times debt to EBITDA and previously you have to balance the volume of acquisition with how much equity you can raise in the marketplace in the cost and associated we’re doing that. What’s great about this transaction and potential to future transactions is you are able to do it as a 100% stock consideration. So, I think as we look at potential targets into the future, I would expect our debt to EBITDA if we are successful in more transactions of this type to go even lower than that.

Abhishek Sinha - Bank of America Merrill Lynch

Thank you very much.

Operator

Thank you. Our next question comes from Tim Doherty from Crédit Agricole.

Tim Doherty - Crédit Agricole

You exchanged so much of my questions on the Berry bonds, but just as a follow-up to managing the restrictive payments basket, I mean, I am just looking at the two longer Berry bonds, so you got the 20s are callable, 15 and 22s are callable and 17. So, is the plan to sort of move cash around until their respective call dates or is there going to be some sort of action before those call dates to deal with those baskets? And I have just one follow up after that.

Mark Ellis

I know, I think it’s too early for us to comment on exactly what we are going to do and how we are going to do it. But what I would tell you is, is that when you look at Berry’s CapEx relative to its cash flow, we don’t need a tremendous amount of cash to flow from Berry to Linn to achieve the distribution payment, so we don’t need a lot of basket flexibility. But if we wanted to just go and payoff Berry’s entire credit facility with Linn’s credit facility, we have the flexibility to do that. And that creates tremendous basket flexibility. So, again that’s…

Tim Doherty - Crédit Agricole

So, that would be the equity – that basically will be an equity concept.

Mark Ellis

Correct. It will be viewed as an equity investment in Berry, which creates more flexibility into the basket. And like I said, long-term, that’s not what we want to do, but it’s very easy to achieve and in the short-term, I think we’ll stick to that for now until we evaluate all opportunities with respect to restructuring.

Tim Doherty - Crédit Agricole

Hey, just one quick follow-up. It seems before couple of the acquisitions from last year went through, it was pretty positive momentum trajectory. And so here it looks like you are back on track to start improving the credit ratings again. And well, I hate you in the deals, (indiscernible) question, but is there a target not just you guys have in mind, where to get to or is it sort of the balance sheet will just improve as these accretive acquisitions come on?

Mark Ellis

Yeah. I mean, it just depends on how much we – how many acquisitions we do on the asset side vis-à-vis the C-Corp side, but same targets are in place and 3.5 times debt to EBITDA, 60-40 equity and bond are debt financing. But the latter part of your question is probably more accurate that if we are able to expect more C-Corp transactions that are primarily stock in consideration, I would expect that the debt metrics just to continue to improve as we get larger.

Tim Doherty - Crédit Agricole

And well let’s say next acquisition, can we do it on not the busiest day of the year?

Mark Ellis

Sorry.

Tim Doherty - Crédit Agricole

That’s it from me guys. Thank you very much.

Mark Ellis

Thank you.

Operator

Thank you. Our next question comes from Douglas Clifford from Omega Advisors. Pardon sir. Your line is open, if you have the phone on mute.

Douglas Clifford - Omega Advisors

Yeah. Congratulations on a great transaction. Your shareholders are quite pleased with this. There have been speculation that you might go to a monthly distribution rather than a quarterly one do you have any thoughts on that?

Kolja Rockov

We do Doug. It’s actually in our earnings press release that we intend to go that direction. We just weren’t able to pay for that up prior to this call, but that’s the direction that we are heading in. Yes, we see value in paying people 12 times a year instead of 4 times a year.

Douglas Clifford - Omega Advisors

Great. And again wonderful deal opens up the whole world to Linn Energy, so yeah, thanks and I appreciate it.

Kolja Rockov

We are excited too.

Mark Ellis

Thanks. And we are excited about it.

Operator

Thank you. Our next question comes from Dan Guffey from Stifel.

Dan Guffey - Stifel

Congrats. Just one quick one on the operational side in the Permian, can you give a little more detail and color around what you have seen from your 20-acre infill pilot has been altered?

Mark Ellis

Yeah, we have done three actual areas now in the 20-acre infills. The Western area is the most mature of those. We are watching results still not quite ready to sanction 20 acre in-fields at this point in time. The two newest areas are on the eastern part of Wolfberry play. We still need to gather some data on that part. We got plenty of 40 acres available to us to continue to develop so we don’t really need to start real in 20 is the run-way anyway, we’re just hoping to be in a position we’re ready whatever the 20 start looking like they are available for us. And so I would say the 20 acre in-fields to me it's not a question of if but when for most of the areas but there will be some areas that are better than others.

Dan Guffey - Stifel

And do you see your degradations with those 20 acres I guess on the western side where you have seen the most data thus far.

Mark Ellis

Yeah I think the data is a little early yet but we will definitively say that, having seen down spacing in the past in my career you always see some degradation so it's not a question of are you going to see some, you will see a little. It's not raw materials it doesn’t look like at this point so maybe in the order of 10% to 15% is kind of what we have in the back of our minds.

Dan Guffey - Stifel

Okay and then just one last one I guess the 40 acre locations you have currently, you guys are going to drill approximately 160 operated wells this year, how many total 40 acre locations do you guys have an inventory currently?

Mark Ellis

It's still on the order of about 350 I believe is our current number.

Operator

Thank you. And our next question comes from Jeff Robertson from Barclays.

Jeff Robertson - Barclays

Kolja you commented about the Berry asset base having about a 15% natural decline, can you talk about where Linn will be pro forma in terms of natural decline?

Kolja Rockov

I think it will be somewhere around the low 20s. We made some material movement in terms of our decline rates as a result of the transactions last year been very low decline, the two major deals we did would be Berry, and this one obviously helps us well being in the 15% range. So still coming in probably in the low 20s.

Jeff Robertson - Barclays

You addressed this a little bit in some of your earlier comments but as you start to think about 2014 and the types of projects that company will have including the Berry asset base, does it change your capital priorities at all in terms of kind of organic growth you have all been targeting?

Mark Ellis

Yes I think it will change allocation to capital certain places that we’re in right now. We want to take a complete look at all of the opportunities and kind of we may want to ramp up in some areas and obviously slow back in some of the other areas that we have been active on. So it will be really interesting to see how that program looks. We have looked at the returns obviously that they generate in all of the areas that they have been active on and they are very competitive with some of our inventory. So I think it's a great exercise it will take place and not in the too distant future actually pretty soon in terms of how we will manage this asset upon successful closing.

Operator

Thank you. And our next question comes from Gary Stromberg from Barclays.

Gary Stromberg - Barclays

Most of my questions have been answered but clearly by my math it looks like Linn will have about a $1.7 billion drawn on it's revolver pro forma, what are you thinking about in terms of comfort level around that amount?

Kolja Rockov

Gary that’s combined with the Berry that you’re saying is $1.7 billion?

Gary Stromberg - Barclays

That’s correct.

Kolja Rockov

Well I mean we have to, we’re going to come up with one revolver presumably for both companies and we still have to figure out what the optimum level for that is and figure out how the debt market street is and look at refinance opportunities, new issue opportunities that turn our but given our revolver size we feel like we have plenty of flexibility and plenty of options.

Operator

Thank you. And we have time for one last question from (inaudible) from SunTrust.

Unidentified Analyst

Couple of quick questions on Berry’s bonds basically, Berry had timed it for the 2014 are there any thoughts around plus the early tendering for them before maturity?

Mark Ellis

I think that question have been asked several times. We’re going to look at all kinds of options available to us but we don’t feel compelled to rush out and do anything in the short term.

Unidentified Analyst

And what’s that RP base (ph) under the 20 bonds and 22 bonds?

Mark Ellis

Well that goes back to the earlier comment that any amount of revolver debt that we pay off if Berry creates basket flexibility, which I don’t believe we need much anyway. So, we feel like we have plenty of flexibility there.

Unidentified Analyst

Okay. And then just on the hedges what’s the – I don’t know if you gave this figure earlier, but what’s the amortization on the previously basically “per quarter”?

Mark Ellis

Well, look we got into that issue as well the cost of the puts is flowing through our mark-to-market accounting. And I would refer you to the document that we filed last Friday and I don’t want to get into every little detail of every quarter and every year.

Unidentified Analyst

Okay, thank you.

Operator

Thank you. This concludes our question-and-answer session for today. If anyone has any further questions, you can follow-up with Linn’s Investor Relations department. And now I would like to hand the call back over to Mark Ellis for closing remarks.

Mark Ellis

Well, thank you very much for participating this morning. It’s obviously very exciting day for us. And again I would also encourage you lot of questions, good questions. If you do have any further ones, please feel free to call our IR group. And thank you so much for your time and intention this morning.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program. You may all disconnect and have a wonderful day.

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