Linn Energy to buy Dominion's oil and gas assets

Jul 02, 2007 02:00 AM

Linn Energy, an oil and natural gas producer, agreed to buy Dominion Resources' exploration and production assets in three US states for $ 2.05 bn to double its proved reserves.
Linn is acquiring proved reserves of 760 bn cf of natural gas and oil equivalent and more than 2,500 producing wells, the Houston based company said in a statement. Linn said the assets in Oklahoma, Texas and Kansas, have potential reserves of 1 tcf of gas and a 15-year reserve life.

The acquisition doubles Linn's total proved reserve base to 1.6 tcf of natural gas. Linn Energy, which trades at about $ 3 per thousand cf of natural gas, is paying about $ 2.70 per 1,000 cf, said Kevin Smith an analyst at Raymond James & Associates in Houston, who rates Linn shares “outperform” and doesn't own shares.
“Linn is in a nice position trading at $ 3 per 1,000 cf,” said Smith. That means this acquisition “is automatically accretive to earnings and shareholders will like that.”

Linn said it has hedged the transaction to protect it against a sudden drop in natural gas prices. The acquisition is a long term bet that natural gas prices will climb over time amid growing demand, Smith said.
Linn is financing the transaction through a private placement of $ 1.5 bn to three private equity firms -- Lehman Brothers MLP Opportunity Fund, Zimmer Lucas Partners and GPS Partners. Lehman Brothers, Citigroup and RBC Capital Markets acted as lead agents in the private placement.

The acquisition is the tenth biggest oil and gas deal this year. Oil and gas deals are ahead of last year's pace with 401 deals worth $ 95.3 bn versus 364 deals worth $ 70.8 bn.
Dominion, the second largest US utility owner, is selling most of its oil and gas properties to cut debt and buy back its stock.

Source / Bloomberg
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