LINN Energy LLC (Nasdaq: LINE) and LinnCo LLC (Nasdaq: LNCO) report that LINN's board of directors has approved a 2015 budget that includes a 53% reduction in oil and natural gas capital expenditures to $730 million, from $1.55 billion in 2014.
The board has also approved a reduction of the LINN distribution and LinnCo dividend to $1.25 per unit or share, from the previous level of $2.90 per unit or share, on an annualized basis. LINN expects to fund its total 2015 oil and natural gas capital program, along with the distribution, from internally generated cash flow.
"After careful consideration, LINN's senior management proposed and the board of directors approved a 2015 budget that contemplates a significantly lower current crude oil price than in 2014,” said Mark E. Ellis, chairman, president, and CEO. “In order to solidify the company's financial position and regain a useful cost of capital, we have reduced the oil and natural gas capital budget and distribution while balancing cash flow and spending."
In addition, LINN has signed a nonbinding letter of intent with private capital investor GSO Capital Partners LP (GSO), the credit platform of The Blackstone Group LP (NYSE:BX), to fund oil and natural gas development (the DrillCo agreement).
Subject to final documentation, funds managed by GSO and its affiliates have agreed to commit up to $500 million with five-year availability to fund drilling programs on locations provided by LINN.
Subject to adjustments depending on asset characteristics and return expectations, GSO will fund 100% of the costs associated with new wells drilled under the DrillCo agreement and is expected to receive an 85% working interest in these wells until it achieves a 15% internal rate of return on annual groupings of wells, while LINN is expected to receive a 15% carried working interest during this period. Upon reaching the internal rate of return target, GSO's interest will be reduced to 5%, while LINN's will increase to 95%.
Jefferies LLC acted as financial advisor to LINN for the DrillCo agreement.