Houston-based Linn Energy LLC is forming a partnership with equity firm Quantum Energy Partners to acquire and develop oil and natural gas assets, the companies said Tuesday.
Quantum has agreed to initially commit up to $1 billion of equity capital to the partnership (AcqCo), and Linn will have the ability to participate in all acquisition opportunities with a direct working interest of 15-50%, the companies said. The alliance would have the potential to exceed $2.5 billion of acquisition and development funding.
The partnership will be focused on conventional and unconventional resource development opportunities across the United States.
AcqCo's board will be composed of five directors, with Quantum and its representatives retaining three seats and Linn having two seats. Assets will be managed by Linn in exchange for a reimbursement of general and administrative expenses. Linn will have the ability to earn a promoted interest in AcqCo. and, upon the sale of any assets within the partnership, Linn will be given right of first offer to acquire those assets.
Linn had hinted at such a deal early this year (see Shale Daily, Jan. 2). At the same time, the company said GSO Capital Partners LP, the credit platform of The Blackstone Group LP, had committed up to $500 million to fund drilling programs on locations provided by Linn. GSO would fund 100% of the costs associated with new wells drilled under that agreement and was expected to receive an 85% working interest in the wells until it achieves a 15% internal rate of return on annual groupings of wells, while Linn was expected to receive a 15% carried working interest. Upon reaching the internal rate of return target, GSO's interest would be reduced to 5%, while Linn's will increase to 95%.
Last year, Quantum formed a similar partnership with privately held investment developer Tug Hill Inc. (see Shale Daily, Aug. 22, 2014). Supported initially with a $450 million total equity commitment from the partners, that partnership would be looking at, among other areas, the Marcellus Shale, where exploration subsidiary Tug Hill Operating has interests.
Quantum has several big investments in the U.S. onshore with private operators, including Vantage Energy Inc., a Barnett and Marcellus operator (see Shale Daily, July 8, 2014). Jagged Peake Energy LLC, based in Denver, is another Quantum-funded producer (see Shale Daily, Aug. 12, 2013).
Quantum is the founding investor in Linn, which claims 7.3 Tcfe of proved reserves in producing U.S. basins as of Dec. 31.
Jefferies LLC is acting as financial advisor to Linn for the AcqCo agreement.