Where Linn Energy LLC (LINE) Plans to Grow in 2013

Jonah is more of a gas asset, as 73% of production is natural gas. It also has a higher decline rate of 14%. Hugoton’s production, on the other hand, has a lower decline at 7%, while it’s just 63% natural gas. The likely reason for the focus on Jonah is that the company will be participating with EnCana Corporation (USA) (NYSE:ECA) on approximately 58 wells while only drilling 18 wells that LINN will operate. That makes more sense, especially when you consider that Encana is one of the few companies that’s still drilling for natural gas these days.

Harvesting future fruit
While the deal won’t close until the second half of the year, LINN’s purchase of Berry Petroleum Company (NYSE:BRY) in conjunction with its affiliate LinnCo LLC (NASDAQ:LNCO) will add even more organic production growth. Before the deal was announced, Berry was planning to spend between $500 million and $600 million of internally generated cash flow to grow its production. Half of those dollars would be spent on its California assets, with the rest of the capital split evenly between the Permian Basin and the Uinta.

The plan was to grow oil production by 10% to 15% in the year ahead, though overall production would grow just 5% to 10%. That’s because the capital spent to grow its oil production would not fully offset the declines of its natural gas business and mature oil assets. It is possible that these plans will change in the year ahead, now that the company will be acquired by LINN.

My Foolish take
While LINN might be known for its model of buying mature production and squeezing every last drop out of its acquired wells, its organic growth opportunities continue to sweeten that deal. The company is spending a bulk of its capital to drill low-risk, liquids-rich wells, which should generate excellent returns for investors. While acquisitions will always be the key driver for LINN, it’s these organic opportunities that will turn a solid acquisition into a fantastic deal for investors.

The article Where LINN Energy Plans to Grow in 2013 originally appeared on Fool.com.

Fool contributor Matt DiLallo owns shares of Linn Energy and LinnCo. The Motley Fool has no position in any of the stocks mentioned.

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