Making Sense of LINN Energy’s Asset Trade with ExxonMobil

Photo credit: LINN Energy

We have a deal:

On May 21 LINN Energy and LinnCo announced that LINN Energy signed a

definitive agreement to trade a portion of its Permian Basin properties to

ExxonMobil for operating interests in the Hugoton Basin.

What LINN Energy/LinnCo receives:

• Current production of 85 Mmcfe/d (80% natural gas and 20% NGLs).

• Shallow base decline rate of 6% per year. • Total reserves of 700 Bcfe (80% natural gas).• More than 500,000 net acres and 2,300 operated

wells.• 400 future drilling locations, which double LINN’s

inventory in the Hugoton Field.

What LINN Energy/LinnCo Gets

• Current production of 85 Mmcfe/d (80% natural gas and 20% NGLs).

• Shallow base decline rate of 6% per year. • Total reserves of 700 Bcfe (80% natural gas).• More than 500,000 net acres and 2,300 operated

wells.• 400 future drilling locations, which double LINN’s

inventory in the Hugoton Field.

What ExxonMobil receives:

• 25,000 net acres in the Midland Basin that are prospective for the Wolfcamp and Spraberry formations.

• 1,000 acres in New Mexico that augments its existing leasehold in the state.

• Assets currently produce 5,000 BOE/d, however, ExxonMobil is just acquiring 2,000 BOE/d of that production.

Apples-to-Apples

• From oil to gas:• LINN Energy is trading about 2,000 barrels of oil

equivalent production per day, or BOE/d to ExxonMobil. That’s equivalent to 11.6 million cubic feet, or MMcfe of natural gas.

• Meanwhile LINN Energy is picking up 85 MMcfe of natural gas production per day, which is equivalent to 14,654 BOE/d.

• That’s a production uplift of about 73.4 Mmcfe/d or 12,654 BOE/d.

What this means to LINN Energy

• That production uplift is accretive to net cash available for distribution by $30-$40 million per year.

• This will likely erase LINN Energy’s estimated $17 million in shortfall of net cash after distributions for this year.

• It will also keep LINN Energy’s distribution coverage ratio around 1.0 times for 2014.

What this means to LINN Energy

• Deal is positive on many levels.• Increases cash flow.• Increases reserves by 10%.• Reduces debt to proved reserves by 9%.• Reduces debt to production by 6%.• Lowers the overall decline rate of the company

and reduces future capital intensity.

LINN still has substantial assets left

• Deal is positive on many levels.• Increases cash flow.• Increases reserves by 10%• Reduces debt to proved reserves by 9%• Reduces debt to production by 6%• Lowers the overall decline rate of the company

and reduces future capital intensity.

LINN still has substantial assets left

• Opportunity to complete more trades or asset sales on the approximately 30,000 acres that remain.

• LINN Energy CEO said company continues to see “strong interest” in remaining assets.

• Any additional trades or sales could be more material to improving the company’s decline rate and cash flow while reducing its capital intensity and debt profile.

Investor takeaway• Trade with ExxonMobil

accomplishes a number of important goals for LINN Energy.• Improves decline rate, cash flow

and credit metrics while adding low risk drilling opportunities.

• Company has additional assets left to trade, which suggests additional upside is possible.

The “secret formula” to LINN Energy’s success.