Linn Energy LLC (LINE), LinnCo LLC (LNCO): Is Energy M&A Activity Set to Explode?

Last year was a record year for mergers and acquisitions within the oil and gas industry. So far, 2013 is off to a fairly decent start, though we’re off from the torrid pace seen at the end of 2012. Instead, we’re seeing complex deals and joint ventures taking center stage. Is this a sign of things to come, or are we primed for an M&A boom?

Let’s make a deal
So far this year, according to consulting firm PricewaterhouseCoopers, U.S.-based companies have spent $27 billion on M&A, which is slightly ahead of last year’s pace of $25.7 deals in the first quarter. Still, we’ve seen a massive 52% drop-off from the fourth quarter of last year, as many companies sold out before we went over the fiscal cliff. We also haven’t seen too many headline-making deals.


One of the largest deals this year, and the one that could make an interesting new trend had Linn Energy LLC (NASDAQ:LINE) combine with its affiliate LinnCo LLC (NASDAQ:LNCO) to purchase Berry Petroleum Company (NYSE:BRY) in an all-stock deal valued at $4.3 billion. The deal was unique because LINN is structured like an MLP while Berry Petroleum Company (NYSE:BRY) is a C-Corp. To get the deal done, Linn Energy LLC (NASDAQ:LINE) used its newly public LinnCo LLC (NASDAQ:LNCO), which is a C-Corp and whose only assets are units of Linn Energy LLC (NASDAQ:LINE), to merge with Berry. Once the merger closes, LINN will trade its units to LinnCo LLC (NASDAQ:LNCO) for Berry Petroleum Company (NYSE:BRY)’s operating assets. Linn Energy LLC (NASDAQ:LINE) believes this new structure could be the new deal standard as it looks to continue to consolidate mature oil and gas assets in the United States.

Rich foreign buyers
The most interested buyers right now are foreign buyers. They represent one of the few buyers with the financial resources and the desire to acquire assets at a premium. That’s one reason one of the quarter’s larger deals saw Chesapeake Energy Corporation (NYSE:CHK) enter into a $1.02 billion joint venture agreement with China’s Sinopec Shanghai Petrochemical Co. (ADR) (NYSE:SHI). The deal was for a 50% interest in 850,000 of Chesapeake Energy Corporation (NYSE:CHK)’s acres in the Mississippi Lime. This deal is one of the many in recent years that saw foreign oil companies purchase oil and gas assets in the United States. Because of the capital required to explore shale resources, we’re seeing more companies explore foreign joint ventures as many U.S.-based producers have seen their own capital wells run dry.