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Linn Energy, LLC Message Board

  • patient_lt_investor patient_lt_investor Feb 24, 2013 6:16 PM Flag

    Optimistic Blog About LINN/Berry

    Here are excerpts from an optimistic blog about LINN's acquisition of Berry. The article makes sense. I believe that this acquisition will increase LINE's pps and payout dramatically over the next 5 years.

    By acquiring Berry Petroleum, Linn Energy will increase its current production by 30% and expand its geographic presence. Berry's assets are similar to what Linn Energy usually acquires, in that they are mature, low-decline, long-life and with stable production profiles. Berry's reserves are approximately 75% oil, which will result in an increase of Linn's liquids exposure, to 54% from 46%.

    The financial benefits gained by acquiring Berry are numerous for Linn Energy. For starters, the acquisition is expected to be extremely accretive, increasing distributable cash flow by over $0.40 per unit. This increase in cash flow will allow Linn Energy to increase its distribution without hurting its coverage ratio. Linn Energy plans to recommend to its board of directors an increase in its current quarterly distribution of 6.2%, to $0.77 per unit, or $3.08 per year. The increase is anticipated to take effect in the quarter immediately following the closing of the transaction to acquire Berry, which is estimated to occur on or before June 30, 2013. Due to the significant accretion expected from this transaction, Linn Energy's coverage ratio for the second half of 2013, is expected to be approximately 1.20x including the anticipated distribution increases.

    As part of its regular practice of hedging acquisitions, Linn Energy plans to hedge most of Berry's expected production. Berry already has significant oil hedges in place which cover more than 60% of its expected oil production for the rest of 2013 and over the coming months, Berry will hedge additional oil volumes at Linn Energy's direction. Linn Energy plans for Berry to become substantially hedged for multiple years into the future. Linn Energy does not currently plan to hedge Berry's natural gas production due to Berry's consumption of natural gas and its steam flood operations in California, which acts as a natural hedge.

    Conclusion

    By buying Berry Petroleum, Linn Energy made stock market history, as this transaction represents the first ever acquisition of a public C-Corp by an upstream LLC or MLP. Linn Energy anticipates that it will greatly benefit by buying Berry. Distributable cash flow is projected to rise, and the coverage ratio is expected to increase. Investors who decided to sell Linn Energy due to overblown "accounting issues" have missed out on a major move in this stock. Units have Linn Energy have gained over 12% since its intraday low this Tuesday. By buying Berry, Linn Energy's management proves that it knows exactly how to create unitholder wealth, and has hit a homerun with this purchase.

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