Linn Energy LLC (LINE), the oil and natural gas partnership that agreed to buy Berry Petroleum Co. (BRY) for $2.42 billion, will spend another $525 million on Permian Basin assets to increase production.
The seller wasn’t identified in a statement today by the Houston-based company. The purchase will add production equivalent to 4,800 barrels of oil a day in the first year. Linn will pay for the purchase with debt.
Linn jumped 13 percent yesterday, the most since December 2008, after providing an update on the Berry purchase that’s being probed by the U.S. Securities and Exchange Commission. The units are still down 21 percent this year on concern the deal won’t close as arranged. Linn agreed to buy Berry in February to raise reserves and increase cash flow to pay unitholders.
“They can’t sit on their hands and wait for this Berry deal to close,” John Ragozzino, an analyst at RBC Capital Markets LLC, said today in a phone interview from Austin, Texas. “They need to grow.”
Ragozzino rates the partnership the equivalent of a buy and owns no units. The risk that the Berry deal may not close or that Linn may have to pay more “remains material and should not be forgotten,” he wrote in a note to clients yesterday.
Linn has been criticized for its use of options to guarantee a price for its gas output. Hedgeye Risk Management LLC, an independent research company, said in a June 18 presentation that Linn isn’t accounting for the full cost of put options and capital expenses such as drilling.
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