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Linn Takes BP's Jonah Gas Operations

Houston's Linn Energy LLC last week made a $1.025 billion cash deal to acquire BP plc's substantial natural gas operations in the Green River Basin of Wyoming.

The agreement gives Linn an operations center in Sublette County and all of BP America Production Co.'s working stakes in the Jonah and Pinedale Anticline fields, which include 260 operated wells with net natural gas production of 80 MMcfe/d and nonoperated wells with estimated output of 66 MMcfe/d. BP has about 750 producing wells in the play across more than 12,500 net acres.

"This acquisition provides Linn with a significant operated position in the Green River Basin of Wyoming and the opportunity to add employees to our staff who have hands-on experience with operations in the Jonah Field," said CEO Mark E. Ellis. The sale is set to close by the end of this month.

"The long-life, low-decline characteristics of the Jonah Field make this asset an excellent fit for us. These properties are expected to provide approximately 145 MMcfe/d [55% operated] of liquids-rich natural gas production...and it holds significant future drilling inventory."

The properties include close to 730 Bcfe of proved reserves, more than half (56%) of which are proved, developed and producing, with a "low decline rate" of 14%, Linn management noted. The production is 73% weighted to natural gas, 23% to natural gas liquids and 4% to oil. The identified resource potential is about 1.2 Tcfe. The estimated adjusted earnings in the first year would be around $160 million, with estimated maintenance capital of $40-50 million, according to Linn.

The Jonah formation, south of Pinedale, WY, covers almost 21,000 square miles and is estimated to hold as much as 1 Tcf of natural gas. Sublette County has other large natural gas and oilfields that include the Wamsutter gas field and several sour gas fields. BP's upstream operations in Moxa and Wamsutter, WY, were not affected by the sale to Linn.

BP, still trying to wedge itself out from under debts and litigation related to the Macondo well blowout in April 2010, will have sold close to $24 billion of its assets since the start of 2010 once the Jonah portfolio sale is completed. By the end of 2013 the oil major has plans to sell $38 billion worth of its portfolio.

"This sale will allow us to realize the value of the mature Jonah assets and reinvest in higher growth opportunities in BP's North America gas business and elsewhere," said BP Group CEO Bob Dudley. "We are actively managing our portfolio of assets and businesses worldwide, focusing our investment on future growth in BP's areas of strength."

BP's management reiterated that the U.S. onshore upstream operations "are an integral part of its business and the company continues to look at opportunities for growth over the long-term," the London-based producer stated. For instance, it noted that in March it leased more than 80,000 acres in the Utica Shale in Ohio (see NGI, April 2). BP also has some offshore properties up for sale, but it remains the largest leaseholder in the Gulf of Mexico (see NGI, June 25; May 7).

Last week analysts with TheStreet reiterated BP at a "hold" with a ratings score of "C." The producer's "strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and good cash flow from operations," said the analysts. "However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and a generally disappointing performance in the stock itself."

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