Linn Energy LLC late Monday said it agreed to pay $1.2 billion to acquire BP plc’s natural gas rich Hugoton Basin properties in Kansas.
The agreement includes the Jayhawk Natural Gas Processing Plant, which has “significant excess capacity,” the company said. The agreement with BP America Production Co. is expected to close by the end of March.
“This acquisition marks our entry into the largest conventional natural gas field in the U.S., and it is an excellent fit for our business strategy,” said Linn CEO Mark E. Ellis. “This impactful transaction has a low decline rate of 7% and is expected to provide 110 MMcfe of liquids-rich production that is 37% NGLs [natural gas liquids].”
The 600,000 net acres now have about 2,400 wells, which are 98% operated. There are an estimated 800 future drilling locations on the leasehold, which is 63% weighted to natural gas. The reserves life is estimated at 18 years. Proved reserves are estimated at 730 Bcfe, with 81% proved developed. The leasehold has about 2,400 operated wells on more than 600,000 contiguous net acres.
The acquisition would be “immediately accretive to distributable cash flow per unit and is expected to provide a very steady stream of cash flow with little requirement for capital investment,” Ellis said. “We also fully hedged for five years 100% of natural gas production and 68% of NGL production, utilizing natural gas puts.”
Estimated 2012 adjusted earnings are about $160 million; maintenance capital was estimated at $30-40 million.
Linn entered into hedging contracts for 100% of the natural gas production associated with the transaction through 2016 using a combination of 50% swaps and 50% puts. In addition, Linn hedged 68% percent of the NGL production through 2016.
With this acquisition, Linn has completed more than $4 billion of acquisitions in a little more than two years it said.
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