8/6/09 BREAKING NEWS – Aggressive MLP
Aggressive Portfolio holding Linn Energy (NSDQ: LINE) announced that it’s acquiring oil-producing properties in the Permian Basin of Texas and New Mexico for a total purchase price of $118 million, funded using the company’s existing credit facility.
These properties have total proved reserves of 12 million barrels of oil equivalent and currently produce 1,350 barrels of oil equivalent per day. Around 86 percent of proved reserves are crude oil.
The move is important for two reasons. First, at more than $100 million this is one of the largest purchases we’ve seen from an upstream partnership since the credit crunch took hold in the latter part of 2008. The fact that Linn is doing this deal and feels comfortable funding it via the company’s existing credit facility is a sign that credit conditions have improved markedly in recent months.
This is great news for partnerships like Linn that have historically generated distribution growth via acquisitions; the acquisition engine of growth is once again functioning.
Second, Linn’s purchase price suggests that oil properties in the Permian Basin are now available at more favorable prices. A simple back-of-the-envelope calculation shows that Linn is paying around $9.80 per barrel of oil equivalent reserves.
Another partnership we follow in How They Rate, Legacy Reserves (NSDQ: LGCY), is highly active in the Permian Basin. In March of 2007, the company acquired broadly similar reserves in the Permian for just under $11 a barrel. In March 2008, Legacy bought reserves at a price of $20 a barrel.
Legacy and Linn are likely to take on further acquisitions in coming months because they can now obtain the credit they need to fund purchases, and properties are available at what look like bargain prices.
This will be a big positive for distribution growth.