Houston-based independent Linn Energy Inc., which began to gain traction this year after being laid low during the industry collapse, is setting its sights on creating three standalone companies by mid-2018, all designed to boost the value of the enterprise.
“The proposed separation is intended to further maximize shareholder returns by unlocking the significant sum of the parts value of Linn's asset base that we believe is still being significantly discounted by the market,” said CEO Mark E. Ellis.
Linn’s broad onshore empire has been whittled down since 2015, with most of its assets now concentrated in the Midcontinent.
Once the separations are completed, shareholders would be able to hold stakes in a pure-play onshore explorer working in Oklahoma’s myriad stacked reservoirs and a midstream business centered in the core of the Anadarko Basin, Ellis said.
As envisioned, Linn Energy Inc., which trades over the counter under “LNGG,” would become a holding company for an existing half-stake in Roan Resources LLC, an exploration and production (E&P) partnership formed last summer to develop Oklahoma’s prolific Anadarko Basin.
For Blue Mountain Midstream LLC, also created last summer to develop the Midcontinent infrastructure, a separate management team may be hired. Also being considered is an independent capital structure, third party acreage dedication, additional investments and/or a separate public listing.
The third entity, which as proposed would be a public company, is to hold the leftover E&P and midstream assets not included in the other separations. “The ultimate strategy of this company, and the assets it will hold, is yet to be determined,” executives said.
Separately, management is in talks with Roan partner Citizen Energy II LLC to consolidate its stakes into Linn Energy Inc. Privately held Citizen, based in Tulsa, agreed to split the equity interest in Roan with Linn, and each company contributed 70,000 net acres across eight Oklahoma counties.
The Roan unit now holds an estimated 150,000 net acres, according to Linn.
Newly appointed CEO Tony Maranto said the Roan management team would begin to assume operations from Linn and Citizen on Jan. 1.
Joining Maranto is Executive Vice President (EVP) Joel Pettit, who for the past 11 years was operations manager of EOG Resources Inc.’s Midland, TX, and Oklahoma City, divisions. EVP Greg Condray, responsible for geoscience and business development, previously worked for EOG and for Chesapeake Energy Corp., where he worked on developing assets in the Eagle Ford and Haynesville shales, as well as the Powder River Basin.
Roan is currently running six drilling rigs and has four completion crews, with 14 wells now producing and 17 drilled but uncompleted.
Net production is expected to surpass 40,000 boe/d net “within the next 30 days,” Linn management said.
“The majority of our acreage is located in an oil-rich window of both the Woodford and Mississippian formations,” said Maranto. “As we focus our 2018 drilling program on the oil area of the play, we expect margins to improve during the year.”
Before year’s end, Linn plans to launch a tender offer to purchase at least $250 million of common shares. It also plans to use proceeds from recent asset sales to finance the tender offer. Pro forma for the tender, Linn expects to have a positive cash balance to maintain operational flexibility.