Linn Energy LLC (NASDAQ:LINE) and LinnCo LLC (NASDAQ:LNCO) announced that LINN has signed a formal agreement with private capital investor GSO Capital Partners L.P. (“GSO”), the credit platform of The Blackstone Group L.P. (“Blackstone”), to fund oil and natural gas development (the “DrillCo Agreement”).
Funds managed by GSO and its affiliates have agreed to commit up to $500 million with 5-year availability to fund drilling programs on locations provided by LINN. Subject to adjustments depending on asset characteristics and return expectations of the selected drilling plan, GSO will fund 100 percent of the costs associated with new wells drilled under the DrillCo Agreement and is expected to receive an 85 percent working interest in these wells until it achieves a 15 percent internal rate of return on annual groupings of wells, while LINN is expected to receive a 15 percent carried working interest during this period. Upon reaching the internal rate of return target, GSO’s interest will be reduced to 5 percent, while LINN’s will increase to 95 percent.
Strategic advantages for LINN:
- Allows LINN to develop assets without increasing capital intensity;
- Potential to add a steady and growing cash flow stream with no capital requirement;
- Increases LINN’s long-term ability to fund all oil and natural gas development capital and the distribution from internally generated cash flow;
- Mitigates drilling risk;
- Potentially broadens acquisition universe; and
- Upon meeting the return hurdle, provides incremental low decline production growth for LINN.
“We are extremely pleased to have finalized the agreement with GSO creating a new source of capital that will allow us to develop assets without increasing capital intensity, enhance our long-term ability to live within cash flow and provide cashless dropdowns of stable production over time,” said Mark E. Ellis, Chairman, President and Chief Executive Officer. (Original Source)
Shares of Linn Energy closed last Thursday at $9.16. LINE has a 1-year high of $32.74 and a 1-year low of $8.58. The stock’s 50-day moving average is $10.39 and its 200-day moving average is $11.20.
On the ratings front, Linn Energy has been the subject of a number of recent research reports. In a report issued on July 1, Raymond James analyst Rich Eychner reiterated a Buy rating on LINE. Separately, on May 18, Goldman Sachs’ Theodore Durbin assigned a Sell rating to the stock .
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Rich Eychner and Theodore Durbin have a total average return of 3.3% and 11.1% respectively. Eychner has a success rate of 100.0% and is ranked #2612 out of 3689 analysts, while Durbin has a success rate of 58.8% and is ranked #838.
Linn Energy LLC is an independent oil and natural gas company. The Company’s properties are located in United States in Rockies, Hugoton Basin, California, East Texas and north Louisiana, Mid-Continent, Permian Basin, Michigan/Illinois and South Texas.