Linn Energy LLC, along with its former unit LinnCo LLC, has agreed to buy Berry Petroleum Co. for about $2.5 billion in stock as the oil and natural-gas developer aims to expand its geographic presence and bolster production.
Including the assumption of debt, the deal is valued at $4.3 billion.
Under the deal's terms, LinnCo--which was formerly a unit of Linn Energy before its initial public offering last year--is offering 1.25 of its shares for each share of Berry, translating into a per-share price of about $46.24 for Berry's shareholders, a 20% premium to Wednesday's close. Shares climbed 14% to $44 in light premarket trading.
Linn Energy noted Berry's long-life, low-decline, mature assets are "an excellent fit" and the acquisition will increase Linn Energy's presence in California, the Permian Basin, East Texas, and the Rockies, as well as adding an attractive new core area in the Uinta Basin.
Linn Energy also said the deal will increase its current production by 30%. Given that Berry's reserves are about 75% oil, Linn Energy said the deal results in an increase in liquids exposure to 54% from 46% of proved reserves as of the end of 2012.
"Berry's assets are an excellent fit for Linn, and we believe this transaction generates significant accretion to our distributable cash flow per unit," said Linn Energy Chief Executive Mark E. Ellis.
In the first full year following closing, accretion to distributable cash flow per unit is expected to exceed 40 cents a unit.
The company added it will recommend its board raise its quarterly distribution by 6.2% to $3.08 a year. The increase would kick in during the quarter following the deal's close, which as of now is estimated to be on or before June 30.
The acquisition is expected to be tax-free to Berry's shareholders. Berry will be converted into an LLC. The combined company will be based in Houston.
LinnCo--which has no assets or operations other than to own interest in Linn Energy--said it has incurred a deferred tax liability in connection with the deal. Linn Energy will pay LinnCo $6 million a year for three years because of the incremental costs to LinnCo resulting from this liability.
Separately Thursday, Linn Energy reported that its fourth-quarter loss narrowed as it increased average daily production 88% as compared with the year earlier.
Last year, Linn Energy agreed to pay roughly $1.03 billion to acquire properties in the Jonah Field from BP PLC's (BP, BP.LN) BP America Production Co. in a bid to increase its position in the Green River Basin of southwest Wyoming.
Linn Energy closed Wednesday at $36.65 while LinnCo closed at $36.99.
Copyright (c) 2012 Dow Jones & Company, Inc.
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