LINN Energy, LLC signed a definitive purchase agreement to acquire Hugoton Basin properties located in Kansas from BP America Production Company for a contract price of $1.2 billion, subject to closing conditions. The company anticipates the acquisition will close on or before March 30, 2012, and will be financed with proceeds from borrowings under its revolving credit facility.
"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 Mark E. Ellis, Chairman, President and Chief Executive Officer. "This impactful transaction has a low decline rate of 7 percent and is expected to provide 110 million cubic feet equivalent of liquids-rich production that is 37 percent NGLs. This acquisition should 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. We also fully hedged for five years 100 percent of natural gas production and 68 percent of NGL production, utilizing natural gas puts."
Significant characteristics expected from the acquisition:
Consistent with LINN's strategy to hedge production associated with acquisitions, the company entered into hedging contracts for 100 percent of the natural gas production associated with this transaction through 2016, or approximately five years. The company used a combination of 50 percent swaps and 50 percent puts to hedge the natural gas volumes, which preserves significant upside if natural gas prices rise. In addition, LINN hedged 68 percent of the NGL production through 2016, or approximately five years, utilizing natural gas puts.
Including this acquisition, LINN Energy has completed more than $4 billion of acquisitions in just over two years. To maintain adequate financial flexibility and liquidity in light of the company's greatly expanded size and scale, LINN recently received commitments from its lenders to increase its revolving credit facility from $1.5 billion to $2 billion, subject to final documentation.
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