Devon got a good price from Linn Energy, Wells Fargo says


Devon Energy (DVN +0.2%) received a better than expected price in its $2.3B deal to sell non-essential U.S. assets to Linn Energy (LINE +1.6%), Wells Fargo analyst David Tameron says.

DVN brought in well above the high end of expectations, which the firm presumes was $1.2B-$1.4B; the divestment helps further delever DVN’s balance sheet, and management expects to reduce net debt by ~$4B by year-end.

LNCO +2.6%.

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Comments (17)
  • Capt Jack Daniels
    , contributor
    Comments (1466) | Send Message
     
    Devon do you have any more assets you'd like to unload?

     

    Came out to roughly $3,285.71 an acre.

     

    Is that a lot?

     

    Glad that Devon at least got a good deal on it's land.
    30 Jun 2014, 12:34 PM Reply Like
  • Michael Phillips
    , contributor
    Comments (757) | Send Message
     
    "Devon do you have any more assets you'd like to unload?"

     

    Yeah, they'd love to unload their Utica misadventure. Think there are any buyers?
    30 Jun 2014, 01:14 PM Reply Like
  • jerrywengler
    , contributor
    Comments (657) | Send Message
     
    Back in my younger days when I was far more daring, I bought a small business for $30,000, built it up quickly, and was able to sell it a year later for $70,000. And that was in the 1970's when money was worth more. After I lost my rear a couple of times, I became more aware of the pitfalls, and became a whole lot more cautious. I think Linn is cautious, but also daring enough to seize the best of opportunities because they really understand their business and its situations. They have a good staff to help while I was just one kid. If they are willing to pay a high price for something today, I think it's because they have the expertise to know what they'll make of it. For them, it may be a terrific trade. Me, I had the nerve but not the expertise of experience present here.
    30 Jun 2014, 07:38 PM Reply Like
  • Vasiliy
    , contributor
    Comments (63) | Send Message
     
    it's a perfect time to buy Penn Virginia Cor!
    30 Jun 2014, 12:40 PM Reply Like
  • Hank890
    , contributor
    Comments (2260) | Send Message
     
    I am long both DVN and LINE, and wondering if I should consolidate. But if so, which way? They have both performed well, overall, in the intermediate term.
    30 Jun 2014, 12:48 PM Reply Like
  • Anne Bonney
    , contributor
    Comments (105) | Send Message
     
    Or, you could sit tight on both assets.
    30 Jun 2014, 01:31 PM Reply Like
  • River18
    , contributor
    Comments (2773) | Send Message
     
    It depends if you want growth with DVN or dividends with LINE.
    I would sell both if I had them in a tax deferred account and buy LNCO.
    But I'm thinking you probably have DVN and LINE in a taxable account, in which case why not keep both to see which one wins the race.
    30 Jun 2014, 11:19 PM Reply Like
  • jackal34731
    , contributor
    Comments (4) | Send Message
     
    Seems like the mkt likes the deal. Wasn't this guy negative about the Bry deal as well? I sure don't know much, but I have done very well with LNCO/LINE. I am a little concerned about the financing for this deal. It seems rather non-specific and I wouldn't want to see a big share offering because Linn could not sell their other assets.
    30 Jun 2014, 01:13 PM Reply Like
  • Chancer
    , contributor
    Comments (4359) | Send Message
     
    I believe in the industry that Line is at the top of the suckers list. Everybody knows they cannot negotiate- except the Line lovers who are singing the praises of Line management for being so smart in this deal, and don't forget the price paid for the BRY deal. When Line comes knocking on your door, increase the price, cause they will pay anything to make a deal.

     

    Sooner or later paying too much will catch up with them. I imagine they will then dilute the shareholders with an offering as a bailout. But it will be concealed as paying down debt (which increased to pay for over priced deals) or providing more cash to make more "great deals."
    30 Jun 2014, 01:31 PM Reply Like
  • The Rebel
    , contributor
    Comments (2715) | Send Message
     
    Well, Mr. Market seems to like the Line part but not the Devon part. After DVN rose over a point in the first half hour, it proceeded to decline the rest of the day, ending slightly down. LNCO held its gains throughout the day and ended about 2 1/2% higher, near the highs for the day. Mr. Market doesn't put much credence in WF analysts.
    30 Jun 2014, 07:51 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1466) | Send Message
     
    Or Line might have underpaid for this asset when you think out beyond a 5 nano second length.

     

    LINN energy is in it for the long haul, not some microsecond.

     

    A lot of times you count up all the assets acquired, you might realize that the said purchase was more a well timed steal or at least well priced.

     

    Despite what a bunch of nay sayers publish or post.
    30 Jun 2014, 01:43 PM Reply Like
  • critterlitter
    , contributor
    Comments (419) | Send Message
     
    Somebody knows something, way above what we can speculate. Shares just don't pop by this amount because someone spent 2 billion bucks. I hope the information comes right from the horse's mouth, being Linn ---- and I'd just as soon not wait until the quarterly report.

     

    It's not that I'm experiencing anxiety or anything because I truly have faith in Linn management. It would just be nice to hear from the team that made the commitment, and I do believe we'll hear something from them in time.
    30 Jun 2014, 02:08 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1466) | Send Message
     
    LINN Energy Announces $2.3 Billion Acquisition of Assets from Devon Energy
    Planned Sale of Granite Wash to Finance

     

    HOUSTON, June 30, 2014 (GLOBE NEWSWIRE) -- LINN Energy, LLC (Nasdaq:LINE) ("LINN" or "the Company") and LinnCo, LLC (Nasdaq:LNCO) ("LinnCo") announced today that LINN has signed a definitive agreement to acquire assets in five U.S. operating areas from Devon Energy Corporation (NYSE:DVN) ("Devon") for $2.3 billion. The assets are currently producing approximately 275 MMcfe/d, approximately 80 percent of which is natural gas, with a shallow base decline of approximately 14 percent. Total proved reserves are estimated to be between 1.3-1.5 Tcfe (approximately 75 percent PDP) with total resource potential of approximately 3 Tcfe. The asset package is comprised of approximately 900,000 net acres across the Rockies, Mid-Continent, east Texas, north Louisiana and south Texas regions with approximately 4,500 total wells. LINN has identified over 1,000 future drilling locations and over 600 recompletion opportunities. LINN's acquisition of Devon assets is intended to be financed ultimately through the sale of its Granite Wash assets and other non-producing acreage in LINN's portfolio. Potential excess proceeds from the sale of assets, if any, will be used initially to reduce debt and for general corporate purposes.

     

    "Early in 2014, we outlined four keys to success at LINN: realize value for the Midland Basin position; continue to make accretive acquisitions; reduce capital intensity while increasing efficiency; and improve credit metrics," said Mark E. Ellis, Chairman, President and Chief Executive Officer. "We believe today's announcement is a positive development in achieving these objectives. As we enter into the second half of the year, we remain committed to these important goals."

     

    Sale of Granite Wash Assets

     

    LINN plans to sell its position in the Granite Wash and Cleveland plays located in the Texas Panhandle and western Oklahoma. Currently, LINN is operating four drilling rigs in the area and producing 230 MMcfe/d of liquids-rich natural gas. LINN's talented team has successfully tested and developed 17 horizontal intervals, including shallow oil, liquids-rich Granite Wash and deep Atoka natural gas. As a result of this delineation, LINN has catalogued significant drilling inventory over its approximately 147,000 net acre position. LINN first began horizontally drilling the Granite Wash in 2010 and has grown production in this prolific area from 65 MMcfe/d to its current rate. To support this growth, the Company developed a substantial integrated network of infrastructure including midstream and water handling facilities which is capable of and recently handled a larger rig program.

     

    Significant benefits from the acquisition of Devon assets and the planned sale of LINN assets:

     

    Reinforce LINN's mission of developing mature, long-life oil and natural gas properties;
    Lower decline rate and reduce capital intensity;
    Tax efficient upon successful completion of 1031 like-kind exchange;
    Meaningful additions to the Company's Rockies and Mid-Continent positions;
    Accretive to excess of net cash provided by operating activities after distributions to unitholders;
    Credit positive from increased steady stream of predictable cash flow, production and reserves.
    Interim Financing

     

    LINN has secured $2.3 billion of committed interim financing for the acquisition of Devon assets, subject to final documentation. The financing was lead arranged by Scotiabank and included Barclays, RBC Capital Markets and Wells Fargo.

     

    The transaction with Devon is subject to satisfactory completion of title and environmental due diligence, as well as the satisfaction of closing conditions. The transaction is expected to close in the third quarter of 2014 with an effective date of April 1, 2014.
    30 Jun 2014, 02:15 PM Reply Like
  • Jdeboer87
    , contributor
    Comments (333) | Send Message
     
    Linn is taking non-producing assets and trading them for producing assets. I like this strategy for 2 reasons:

     

    (1) It should be immediately cash flow positive (after the sale of the non-producing assets) to the shareholders as you are financing the deal with assets on your balance sheet and not debt or additional equity.
    (2) These producing assets seem to have plenty of opportunity to grow production as they have already identified significant future drilling locations. And remember they still have plenty of opportunity for drilling in the Barry assets recently acquired.

     

    I really like this management team. They seem to know what they are doing. I see their stock hitting 40 next year once they have sold these assets and start increasing distributions.
    30 Jun 2014, 03:55 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1466) | Send Message
     
    It's not like Linn isn't going to sell some assets that already have proven value. On some of the land it intends selling they already have producing wells and structures in place for the potential acquirer.

     

    This deal with Devon was possible because Devon wanted to de-lever.

     

    Linn is being smart in acquiring assets that will enhance it's areas of expertise and regionality and help in economies of scale and those that have very long lives.
    30 Jun 2014, 04:03 PM Reply Like
  • Jdeboer87
    , contributor
    Comments (333) | Send Message
     
    Sometimes you get lucky and are in the rights place at the right time. I like the distribution and its tax efficient for me as I have other Partnerships throwing off losses. I think they have positioned themselves to hold and possibly grow distribution in the next year, but it seems to me that it will be dependent on the level on new drilling they deploy. But, I think this management team gets it and will decide appropriately the level of Capex vs distribution increase.

     

    For now I think they have protected the current distribution level.
    30 Jun 2014, 04:31 PM Reply Like
  • gabby1945
    , contributor
    Comments (2509) | Send Message
     
    If one wishes to speculate about future possibilities within reasonable boundaries, one could look at the Exxon deal adding accretion to over one for DCF distribution coverage, Berry, after some specific capex spending adding more, and Devon's wells adding more until we see a 1.4 or 1.5 coverage ratio.
    The questions become how much capex will be needed for the development of 900 more wells in the Devon fields, what percentage of additional output will be needed to push the DCF ratio higher, and what time frame will be needed to accomplish this? If the required capex is higher than anticipated for whatever reason, then the long term debt climbs, and future increased distribution get pushed further out into the future (1.4-1.5). I'm not saying there will be no increased distribution in the short term, I'm saying reaching the lofty goal of 1.4- 1.5 coverage ratio will be delayed. With this ratio the company would be on a solid financial footing allowing me to sleep better.
    30 Jun 2014, 08:57 PM Reply Like
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