Same Wells, Better Results and More Profits
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You might have heard that we’ve got a bit of a bonanza going on when it comes to domestic energy production. New shale plays that were unknown just a few years ago are becoming household names. Yet, while most of America’s energy companies are focusing on exploring for hot new plays to exploit the boom, one company is focusing on getting more from our current wells and resource basins.
That company is Linn Energy (NASDAQ: LINE), and their most recent quarterly report showed why that strategy continues to pay off. In one such example from earlier this year, the company announced that they were purchasing the Hugoton Field in Kansas from BP (NYSE: BP). As I’m sure you know, BP has been shedding assets in order to better capitalize their company in the wake of the Gulf of Mexico disaster. So far this year, Linn has raided BP in two separate deals for more than a billion dollars’ worth of assets.
The Hugoton Field is 63% natural gas and 37% NGL’s, and it included 100% ownership of the Jayhawk Gas Plant, which at the time of the deal was only 41% utilized. The mature producing field included 2,400 operated wells as well as 800 future drilling locations. What might have been overlooked are the approximately 500 recompletion opportunities.
In their most recent quarterly conference call, CEO Mark Ellis said that the company has already concluded 80 optimization projects in the Hugoton Field, which resulted in about 3 million cubic feet equivalent per day of additional production. These are high return projects that enable older wells to produce more energy.
Another technique that Linn’s just beginning to use to get more out of older fields is though Enhanced Oil Recovery projects. They are learning how to benefit from this technique through their 23% owned joint venture with Anadarko (NYSE: APC) in the Salt Creek field in Wyoming. Anadarko has extensive experience with these CO2 floods and can teach Linn how to transfer this technology to their existing asset base as well as those that they’ll acquire in the future.
Acquiring additional assets is one of their top priorities. Linn estimates that there are $20 to $30 billon in assets coming to market within the next 18 months. To date the company has screened 186 opportunities, bid on 12 for $6.2 billion and closed four at a price tag of $2.8 billion.
To ensure they have the capital necessary to bid on all the assets that’ll come to market over the next year and a half, they recently completed the IPO of their new LinnCo (NASDAQ: LNCO) subsidiary for $1.3 billion. The IPO was the second largest IPO to date this year, which really validates their operating model. This game changing access to capital enables Linn to continue their very successful strategy.
One final aspect of their strategy that I’ve yet to touch on is that they still have a lot of organic growth opportunities in their acquired acreage. The top opportunity that they’re focusing on this year is the Hogshooter formation of the Granite Wash. So far they’ve drilled 12 wells, nine of which were drilled in the most recent quarter. The first three Hogshooter wells paid off in 90 days. The company has already identified 50 additional drilling locations and is testing to see if that inventory can be further expanded.
Linn continues to impress as they drive more value from existing assets, which keeps their generous distribution flowing back to unit holders. They are well hedged for the next few years, ensuring those cash flows remain stable. Both Linn Energy and LinnCo offer a compelling opportunity for income focused investors.
latimerburned owns shares of Linn Energy, LLC. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
