By Matt DiLallo | More Articles | Save For Later
January 24, 2013 | Comments (0)
You can have the best business model in the world, but without the right leadership a company's chances of failing significantly increase. It's important for investors to dig a little deeper and consider who's running things and whether they are up to the task at hand.
LINN Energy (NASDAQ: LINE ) is a different kind of energy company. Its business model of buying producing oil and gas assets might sound easy. But for LINN, it must work around the natural decline rates to keep the energy flowing while always acquiring new assets so that it can continue distributing cash back to investors.
As an active acquirer, LINN needs to have a knowledgeable and disciplined management team so that it acquires the right assets for its model. The team needs to have experience in evaluating oil and gas properties and then integrating them into a larger organization after it uses its financial acumen in navigating the capital markets to acquire them on favorable terms. It's not as easy as it sounds, so its important that LINN has the right management team to get the job done.
Starting at the top, you'll find Chairman, President, and Chief Executive Officer Mark E. Ellis. Ellis has more than 30 years of experience in the oil and natural gas industry. He's been with LINN Energy since 2006 when he was hired to be the company's chief operating officer. He was promoted to be the company's CEO in January 2010, and became its chairman in December 2011.
Prior to coming to LINN, he was the president of the Lower 48 for ConocoPhillips (NYSE: COP ) . He was also the senior vice president of North American production for Burlington Resources, a company that was acquired by ConocoPhillips. What's important for investors to see is that Ellis is not just experienced in the operations of an oil and natural gas company, but he worked for a top energy company in ConocoPhillips. He also knows what its like to work for an acquired asset and that experience likely plays a key role in how LINN handles its acquired employees. The education and experience gained while working at ConocoPhillips is invaluable to crafting and executing LINN Energy's plan.
Looking deeper into LINN's leadership, you'll see that CFO Kolja Rockov is also a man that brings the right experience to the company. Before joining LINN in 2005, he was the managing director and head of U.S. exploration and production for RBC Capital Markets Energy Group. He has an extensive background of more than 12 years as an energy investment banker. That experience was instrumental in guiding LINN through its first-of-a-kind IPO -- at the time LINN was the first exploration and production company to be structured similar to an MLP.
His background also helped the company repeat that success when it took LinnCo (NASDAQ: LNCO ) public last year. Knowing what was missing in the market for energy investors, his team structured LinnCo as a C-Corp to access investors who were turned off by LINN's MLP-like tax structure. With LinnCo only owning units of LINN, its investors get access to the great business management has developed without saddling investors with the extra paperwork that comes with owning an MLP. It also gave LINN another vehicle to use in raising capital to keep growing. It's why his investment banking experience is a critical component of LINN's successful acquisition track record.
Succeeding Mark Ellis in the COO role was Arden Walker. Walker joined the company in 2007 from ConocoPhillips where, like Ellis, he also served in various leadership positions at Burlington Resources. He also knows from experience what it's like to be acquired, and that experience has helped LINN to continue to successfully integrate acquired assets each year. With more than 30 years of experience in the oil and natural gas industry Walker is very capable to be leading LINN's growing operations.
Knowing the management team and their background is an important step in finding investments that'll outperform over the long term. Together the team at LINN has seamlessly integrated almost $10 billion in acquisitions in their years together while increasing distribution to shareholders by 81% since going public. Investors of both LINN and LinnCo appear to be in very capable hands and I'm glad to be invested in both.