Houston-based Linn Energy LLC more than doubled its natural gas reserves last week after it joined with a group of investors to acquire Dominion Resources Inc.’s Midcontinent properties for $2.05 billion. With the announcement, Dominion now has sold or agreed to sell all of the exploration and production (E&P) operations that it plans to divest from its portfolio.

The acquisition complements Linn Energy’s existing domestic assets, and it adds more than 2,500 producing wells in Oklahoma, the Texas Panhandle and Kansas to its portfolio. Dominion’s Midcontinent operations hold proved reserves that total more than 760 Bcfe and are more than 75% proved developed. The reserves mix is about 93% weighted to gas and natural gas liquids and 7% weighted to oil. The proved reserve life index is about 15 years, with more than 2 Tcfe of proved and potential reserves from more than 3,000 drilling locations.

The transaction, which is expected to close in the third quarter, will give Linn Energy total proved reserves of about 1.6 Tcfe, a reserve life index of 20 years and more than 5,000 drilling locations.

“This is a transforming event for our company that demonstrates our ability to move quickly and take advantage of a remarkable acquisition opportunity,” said CEO Michael C. Linn, who founded the company in 2003. “In addition to doubling our total proved reserve base…this acquisition will establish Linn Energy as one of the top producers in the Midcontinent and will significantly increase our inventory of development opportunities for future growth potential.”

To help finance the deal, Linn Energy privately placed $1.5 billion of equity securities with a group of third-party investors, led by Lehman Brothers MLP Opportunity Fund and co-led by Zimmer Lucas Partners LLC and GPS Partners LLC. New investors that previously had not held a position in Linn Energy represented about half of the proceeds from the private placement. The transaction consists of 13 million units and about 35 million class D units at a price of $31.25/unit.

The equity transaction will allow the producer to increase its borrowing base to $1.6-1.8 billion from $765 million, and proceeds from the equity placement, together with funds available under the company’s credit facility, are expected to fully fund the purchase price. With the deal, Linn Energy’s management also plans to recommend an increase in the company’s cash distribution to an annual rate of $2.52/unit — up 11% — beginning in the fourth quarter.

The independent, which had been headquartered in Pittsburgh until last year, explores for oil and gas in the Appalachian Basin, including West Virginia, Pennsylvania, New York and Virginia; the Brea Olinda field of the Los Angeles Basin in California; the Midcontinent, including the Sooner Trend of north-central Oklahoma; and the Texas Panhandle, which consists of the Texas portion of the Hugoton-Panhandle field. At the end of 2006, Linn Energy’s proved reserves totaled 454.1 Bcfe, and the company operated 1,943 net oil and 431 net gas wells. Linn Energy also performs gas gathering activities for third-party producers.

Linn Energy launched an initial public offering in 2006 as it moved to become a master limited partnership (see NGI, Dec. 18, 2006). In May, the independent announced a $90.5 million deal to purchase some properties in the Texas Panhandle, which added more than 36,000 gross acres and 300 producing wells to its existing assets in the region (see NGI, May 14).

Dominion announced last November that it would sell most of its E&P assets as part of a strategic repositioning to focus on its electricity operations. Dominion last week completed the sale of its offshore E&P business to a subsidiary of Italy’s Eni SpA for $4.76 billion (see NGI, May 7). Last month, Dominion completed the sale of its Canadian E&P operations to Canadian-based Paramount Energy Trust and Baytex Energy Trust for US$624 million (see NGI, June 4).

Dominion also has a deal to sell nearly all of its U.S. onshore E&P properties in a two-way transaction with Loews Corp. and XTO Energy Corp. for $6.5 billion, which has not yet been completed (see NGI, June 11).

Dominion will retain its Appalachian E&P operations and 1 Tcfe of reserves — primarily gas — because of their strategic fit with the rest of the company.

Dominion CEO Thomas F. Farrell II said the sale to Linn Energy “is the final transaction needed to complete our transition into a company more focused on energy infrastructure businesses. We excel in those businesses and believe that Dominion has the right mix of high-quality assets, growth opportunities and people to prosper in today’s environment and serve our customers and shareholders well.”

Farrell noted that the factors favoring the company include the strength and diversity of the Virginia economy, the stability and incentives provided by the new Virginia hybrid regulatory model, superior growth opportunities in Dominion’s pipeline and storage business and improving conditions in markets served by its merchant power fleet.

“There is no other company in our industry that can match our assets, people and opportunities,” Farrell said.

In related news, Dominion last week completed the merger of subsidiary Consolidated Natural Gas Co. (CNG) into the parent holding company, Dominion Resources Inc., as part of a move to streamline its corporate structure. As a result of the merger, Dominion has assumed all obligations related to CNG indebtedness as well as any other financial obligations such as guarantees. First-tier CNG subsidiaries have become first-tier Dominion subsidiaries instead of second-tier subsidiaries.

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