The Fraser Institute: Texas Most Attractive Jurisdiction in the World for Global Oil and Gas Investment

Posted: Thursday, November 20, 2014 11:45 am

CALGARY, ALBERTA – On the strength of its petroleum reserves, Texas remains the most attractive jurisdiction for oil and gas investment in the world, finds the Fraser Institute’s annual Global Petroleum Survey.

Based on responses from petroleum executives and managers, this year’s survey ranks 156 jurisdictions worldwide on their relative attractiveness for investment. Barriers to investment include high taxes, costly regulatory obligations and uncertainty over environmental regulations.

“Texas’ wealth of petroleum reserves continue to attract investment, which fuels the Texas economy and creates jobs and widespread prosperity,” said Kenneth Green, senior director of the Fraser Institute’s Centre for Natural Resources.

The survey considers both the input from respondents and the oil and gas reserves (or lack thereof) of each jurisdiction to determine a ranking. Of the 27 jurisdictions with large petroleum reserves, Texas tops the list followed by Alberta, Norway-North Sea, the United Arab Emirates and Qatar. Conversely, Venezuela, Iran, four Russian regions, Iraq and Egypt are least attractive to investment.

Of the 44 jurisdictions with medium-sized reserves, Oklahoma is number one followed by Arkansas, North Dakota, Wyoming and Utah.

Of the remaining 69 jurisdictions, which have relatively small proven oil and gas reserves, Mississippi tops the list followed by Saskatchewan, Manitoba, Alabama and Kansas.

“Unlike many places around the world, North American jurisdictions typically provide safe environments for people and their assets, and have a transparent legal system that’s attractive to oil and gas investment,” Green said.

Additionally, the survey features an alternate ranking format, which ignores proven oil and gas reserves and focuses solely on survey responses. In this format, Oklahoma ranks first followed by Mississippi, Saskatchewan, Arkansas and Manitoba.

Meanwhile, Venezuela, Bolivia, Ecuador, Iran and Russia-Eastern Siberia are least attractive to investment.

“In Venezuela, flagrant abuse of the decision-making processes and delinquency in payment for delivered crude were among the factors deterring petroleum investment in the country,” Green said.

The Global Petroleum Survey is administered each year to petroleum industry executives to help measure and rank the barriers to investment of oil- and gas-producing regions. A total of 710 respondents representing 563 companies completed the survey questionnaire this year, providing sufficient data to evaluate 156 jurisdictions.

The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute’s independence, it does not accept grants from governments or contracts for research. Visit


Three More Glacier County Wells OK’d; Helium Producer To Drill Nisku Well In Roosevelt County

A crew prepares to “spud” a well in Lewis and Clark County, Montana. Sun Times photo by Darryl L. Flowers
Published: Monday, September 23, 2013 5:46 PM CDT

Compiled by Darryl L. Flowers

New Locations

In Glacier County, Synergy Offshore LLC was approved for three wells in the Cut Bank Field, all targeting the Ellis Formation at a proposed depth of 3,025 feet: the NECBSU T202, located at SE NW 2-34N-6W (1350 FNL/1280 FWL); the NECBSU T402 located at SE NW 2-34N-6W (1382 FNL/2621 FWL) and the NECBSU T603, located at NE 3-34N-6W (1378 FNL/865 FEL). The “NECBSU” in the well names translates to “Northeast Cut Bank Sand Unit”.

In Roosevelt County’s East Tule Field, Weil Oil, LLC has been approved to drill the Weil-Bridges 2, located at SE NE 15-30N-48E (1947 FNL/325 FEL). The well targets the Nisku Formation at a proposed depth of 7,600 feet. According to the Board of Oil and Gas Conservation database, this is the first oil well for the firm, which is based in Richmond, Virginia. Parent company Weil Group Resources, LLC, however, is no stranger to Montana. Subsidiary Weil Helium, LLC’s initial project is the production of helium from a 6,500 acre project near Rudyard, Montana. According to the company, the area has strong helium flows from a reservoir that exceeds 2,000,000,000 cubic feet. Helium is produced when natural gas is refined. In 2012, a press release posted on Senator Jon Tester’s website referred to Weil Helium’s Rudyard operation when announcing the Senator’s support for the extraction and sale of helium in the Treasure State.

In Rosebud County, Cardinal Oil, LLC was approved to drill the Galt 1-12-34, located at NE NW 12-9N-34E (990 FNL/2295 FWL). The Galt will target the Eagle Formation at a proposed depth of 2,500 feet.

New Locations – Horizontal Wells

In Roosevelt County, Oasis Petroleum North America LLC was approved to drill the Faye Federal 2759 43-19H, with a Surface Hole Location (SHL) at SW SE 19-27N-59E (510 FSL/1680 FEL) and a Probable Bottom Hole Location (PBHL) of 20,985 feet at SW SE 31-27N-59E (250 FSL/2100 FEL). The well targets the Bakken Formation.

Re-Issued Locations

In Fallon County’s Cedar Creek Field, Fidelity Exploration & Production Co. received re-issued permits for twelve wells, all targeting the Eagle Formation at a proposed depth of 2,000 feet. The wells are: the State 2857, located at NW SW 36-6N-60E (2624 FSL/1258 FWL); the Fee-BR 2838, located at SE SW 21-5N-61E (1305 FSL/2645 FWL); the Fee 2850, located at NE NW 30-5N-61E (116 FNL/1436 FWL); the Fee-BR 2875, located at NE SW 31-6N-61E (2572 FSL/1344 FWL); the Fee-BR 2876, located atNW SE 31-6N-61E (1381 FSL/2576 FEL); the Fee-CP 2225, located at SE NW 13-4N-61E (2624 FNL/1400 FWL); the Fee-CP 2241, located at NW SE 19-4N-62E (2600 FSL/1332 FEL); the Fee 2252, located at SE NW 8-5N-61E (1428 FNL/2588 FWL); the Fee-CP 2863, located at SE NW 11-6N-60E (1924 FNL/1927 FWL); the Fee-CP 2257, located at SW NE 33-7N-60E (1962 FNL/2026 FEL); the Fee-CP 4013, located at NW 7-7N-60E (686 FNL/122 FWL) and the State 4027, located at SW SW 36-8N-59E (675 FSL/670 FWL).

In Richland County, Continental Resources Inc. was permitted for three wells. The Custer 1-7H has an SHL at NE NW 18-27N-54E (508 FNL/2125 FWL) and a PBHL of 19,852 feet at NE NW 6-27N-54E (200 FNL/1980 FWL). The Washburn 1-18H has an SHL at NE NW 18-27N-54E (547 FNL/2096 FWL) and a PBHL of 18,947 feet at SE SW 19-27N-54E (200 FSL/1980 FWL). The Snow 1-13H has an SHL at NW NE 13-23N-54E (280 FNL/1980 FEL) and a PBHL of 19,864 feet at SW SE 24-23N-54E (200 FSL/1980 FEL). The three wells will target the Bakken Formation.

In Sheridan County, a permit was re-issued to Sinclair Oil & Gas Company for the Chisholm 1-31TFH, a Three Forks Formation well with an SHL at NW NW 3-32N-56E (250 FNL/1130 FWL) and a PBHL of 19,982 feet at N2 NE 30-33N-56E (200 FNL/1320 FEL).


In Fallon County’s Lookout Butte Field, Denbury Onshore, LLC filed a completion report for the Unit 12-15, located at SW NW 15-6N-60E (1800 FNL/690 FWL). The well reported an Initial Production (IP) of 44 Barrels of Oil Per Day (BOPD) and 384 Barrels of Water Per Day (BWPD). The well produces from the Red River Formation.

In Richland County, Continental Resources Inc. reported the completion of four Bakken Formation wells. The Hitchcock 1-9H, with an SHL at NE NW 9-26N-53E (200 FNL/1672 FWL) and a Bottom Hole Location (BHL) at SE SW 16-26N-53E (231 FSL/1977 FWL) reported an IP of 340 BOPD, 242 Thousand Cubic Feet of Gas Per Day (MCFPD) and 255 BWPD. The Revere 1-31H has an SHL at SE SW 31-27N-53E (250 FSL/1980 FWL) and two laterals with Bottom Hole Locations of 14,970 at NE SW 30-27N-53E (1341 FSL/2022 FWL) and 18,680 at NE NW 30-27N-53E (239 FNL/2026 FWL). The Revere reported an IP of 613 BOPD, 610 (MCFPD) and 402 BWPD. The Tower 1-4H, with an SHL at NE NW 9-26N-53E (200 FNL/1627 FWL) and two laterals with BHLs of 14,791 feet at SE SW 33-27N-53E (565 FSL/2378 FWL) and 19,277 feet at NE NW 33-27N-53E (236 FNL/2331 FWL) reported an IP of 508 BOPD, 325 MCFPD and 277 BWPD. The Pine 12-1 1H, with an SHL at SE SE 12-24N-51E (280 FSL/740 FEL) and two laterals with BHLs of 10,244 feet at NE SE 12-24N-51E (2057 FSL/763 FEL) and 14,744 feet at SE SE 1-24N-51E (1267 FSL/813 FEL) turned in an IP of 158 BOPD, 430 MCFPD and 173 BWPD.

Also in Richland County, Oasis Petroleum North America LLC reported the completion of the Stilt Federal 2658 42-22H, with an SHL at SE SW 22-26N-58E (200 FSL/1670 FWL) and a BHL of 20,730 feet at SW SW 34-26N-58E (357 FSL/1236 FWL). The Bakken Formation well turned in an IP of 970 BOPD, 846 MCFPD and 2,051 BWPD.

In Roosevelt County, Oasis Petroleum North America LLC filed a completion report for the Ma 2758 41-11B, a Bakken Formation well with an SHL at SW SW 11-27N-58E (390 FSL/600 FWL) and two laterals with BHLs of 10,475 feet at SW SW 11-27N-58E (351 FSL/602 FWL) and 20,475 feet at SW SW 23-27N-58E (334 FSL/609 FWL). The reported IP was 1,626 BOPD, 1,201 MCFPD and 8,470 BWPD.

In Sheridan County, Unit Petroleum Company reported the completion of the Abenroth 1-2H. The Bakken Formation well has an SHL at NE NW 2-36N-54E (300 FNL/1940 FWL) and a BHL of 11,959 feet at SE SW 2-36N-54E (665 FSL/1945 FWL). The IP was reported as 3 BOPD and 300 BWPD.

Abandoned Wells

In Blaine County, Devon Energy Production Co., LP was approved to abandon four wells: the Ross 6-11, located at NE SW 6-30N-18E (1645 FSL/1465 FWL); the F. Olson 18-9, located at NE SE 18-31N-18E (1980 FSL/660 FEL); the Sorensen 7-8, located at SE NE 7-31N-19E (1850 FNL/1272 FEL) and the Olson 18-2, located at NW NE 18-31N-18E (650 FNL/2100 FEL).

In Powder River County’s Bell Creek Field, Denbury Onshore, LLC was approved to abandon the USA 1-1, located at SE SE 1-9S-53E (520 FSL/710 FEL) and the Federal 8-16, located at SE SE 8-9S-54E (612 FSL/855 FEL).

In Toole County’s Devon South Field, Mountain Pacific General Inc. was approved to abandon the Grant 6-33, located at SE NW 33-31N-1E (1980 FNL/1980 FWL) and the Boland 14-28, located at SE SW 28-31N-1E (660 FSL/1980 FWL).

Darryl L. Flowers is the publisher of the Sun Times in Fairfield, Montana,, and can be reached at

Western Group Defends Victory At Federal Appeals Court

Published: Tuesday, September 24, 2013 4:33 PM CDT

Energy outfits in Pennsylvania, after winning at the U.S. Court of Appeals for the Third Circuit in Philadelphia in September 2011, which upheld a December 2009 ruling by a Pennsylvania federal district court regarding their property rights, and then prevailing at the district court in September 2012, today defended their victories at the Third Circuit against three environmental groups.  The energy operators sued the U.S. Forest Service for settling the groups’ lawsuit.  In a 2009 ruling, the district court barred the agency from implementing its settlement agreement, prohibited it from doing studies on the use of privately owned oil, gas, and mineral rights beneath the Allegheny National Forest (ANF), and lifted the moratorium on oil and gas drilling in the ANF.  The district court converted its preliminary injunction into a final declaratory judgment in 2012.  Minard Run Oil Company and the Pennsylvania Independent Oil and Gas Association are represented by Mountain States Legal Foundation (MSLF), the District of Columbia law firm of Crowell & Moring, and the Wolford Law Firm of Erie.  MSLF Vice President Steven J. Lechner appeared for the oral arguments.

“As one of the three-judge panel said in arguments, the court’s earlier holding could not be ‘clearer’,” said William Perry Pendley, MSLF president.

The ANF, which covers 500,000 acres in Elk, Forest, McKean, and Warren Counties in northwestern Pennsylvania, comprises lands that were once privately owned and were purchased under the 1911 Weeks Act during the 1920s.  Because the United States bought only the surface estate, most of the mineral rights in the ANF are privately owned.  Thus, there is no contractual basis for any federal government regulatory authority over outstanding oil, gas, and mineral (OGM) rights in the ANF.

Although, under Pennsylvania law, owners of OGM estates have the right to go onto the surface to access their property and to use as much of the surface as necessary to remove it, the law provides for accommodation; therefore, OGM rights must be exercised with “due regard” for the interests of surface owners.  That the United States owns the surface does not change the law.  In accordance with the Forest Service Manual, the Forest Service has only limited rights as to the use of OGM rights within the ANF.  This was recognized by a Pennsylvania federal district court in a 1980 ruling.

For decades, the Forest Service adhered to the law and its policy and responded to an operator’s 60-day notice of its plans with consultations and a notice to proceed.  A notice to proceed, however, is not a decision to allow oil and gas development because the Forest Service has no regulatory power over OGM rights.  In 2007, the Forest Service began to reverse this policy.

Minard Run Oil Company v. United States Forest Service, No. 10-1265 (3rd Cir.)

“We’ve Got Hydrocarbons”

The moon breaks through the clouds late Saturday night as the drilling continues at the Milford Colony well in Lewis & Clark County. Sun Times photos by Darryl L. Flowers
By Darryl L. Flowers
Published: Monday, September 23, 2013 5:46 PM CDT

The first phase of drilling the Milford Colony  13-11 well in Lewis and Clark County ended Monday afternoon when the drillbit reached “TD,” or total depth. “I feel good about the well. It feels good to have something drilled.” said Glen Landry, a geologist and the President and CEO of Norstra Energy.

The drilling rig reached 850 feet, believed to be in the Two Medicine Formation. Landry examined the cuttings under a stereoscope and recorded the characteristics of the rock. Next to the stereoscope was a light box, used to check for fluorescence, a sign of oil. Landry, with a grin, reported “We’ve got hyrdocarbons.”

In a conversation with Joe Large, President of RPM Geologic, Landry explained that the driller had found several “oil shows.” “We had shows of oil at 309 to 367 feet, 428 feet and at 521 feet we found a red shale layer that produced blooming cut when put into a chemical.” Landry explained to the Sun Times that these oil shows are not an indicator of commercial quantities, “But the oil has to come from somewhere.” Landry thinks the oil may have migrated from the Cone Formation or the Bakken Formation. Both are found throughout the region.

The oil found in the cuttings was a heavy oil, degraded from a light crude over time by exposure to water.

The drilling got underway early Friday afternoon when Faith Drilling Rig #5, a small “single section” rig began boring a wide, shallow hole a few feet from the actual well location. The hole is known as a “rathole,” and is used to store the drillbit as drillpipe sections are being added or removed from the well. As the drillbit bores through the rock, going lower and lower, sections of steel pipe have to be added. The pipe is hollow, allowing drilling “mud” to circulate down the pipe and through holes on the drillbit. The mud cools and lubricates the bit. As the water is pushed down the pipe by powerful pumps, the cuttings-laden fluid exits out the hole by flowing up the outside of the pipe.

After the rathole was completed, the crew from Faith Drilling swapped to a small bit to drill a pilot hole. The pilot hole would serve as a guide for a huge 17 inch bit that drilled the conductor pipe, a large steel pipe that would guide the bit as it first bites into the rock.

Late Friday night Glen Landry sat in his truck watching the drill rig. He was impatient, but excited. The bit could not go fast enough, but he was glad to see a start to the South Sun River Project.

With cement trucks at the ready, the bit was pulled out and Faith Drilling owner Doug Bruner supervised the crew as the long conductor pipe was positioned to be driven into the hole. Landry was nervous.

“I hope the hole doesn’t collapse.” At the top of the well site, just like most of the area, there is a lot of glacial debris, rocks that were worn smooth form being ground under the enormous weight of the glaciers that carved though the region. If the rocks fall into the hole, the drill crew will have to run the bit back down, “reaming” the hole for another try.

The conductor pipe is hoisted above the rig floor and lowered smoothly into position. Now the trucks begin mixing the cement to seal the pipe. Once in place, the cement will cure overnight.

By Saturday afternoon, the drilling process has settled into a routine. A slow routine. The pipe sinks slowly into the Rocky Mountain Front, tiny bits of rock coming out of the shaker, a device that removes the cuttings from the drilling mud.

The crew preps a pipe section for insertion into the drill string. It’s going to be a while before the pipe is needed. The crew, though, stays busy. They check the mix of the drilling mud, making sure it has the right consistency. They check the many humming diesels that drive the rig, the pumps, the generators. There is always something to do.

Finally, as the last streams of sunset find cracks in the clouds, the drill has gone as deep as it can. It’s time to add another section. Rig hands head to the drilling floor and begin the process to lengthen the drillstring. There is a change in the sounds of the diesel engines as the bit slows down and comes to a stop.

A Kelly rig is old school drilling. A Kelly bushing, on the rig floor, turns the Kelly, a square pipe that connects to the pipe and the bit. Newer rigs, especially the larger ones, use a “top drive.”

“For drilling the surface casing, I like the Kelly rig,” says Landry. “They seem to drill a straighter hole.

Landry must be right. While in the “doghouse,” or rig office, a small building located a few steps form the drill floor, I watch as Doug Bruner’s crew uses a device to measure just how straight the hole is. The device is lowered into the hole and punches two tiny holes in a circle of paper smaller than a quarter. One hole is punched, then the device turns slightly. A second hole is punched. Bruner shows the paper through a special viewer. It’s easy to make out a center dot, then several concentric circles. The first circle has two barely noticeable punch holes. “You want to see both of those holes at an equal distance from the center point,” explains Bruner. “That means both the readings are equal, so you have an accurate measurement of the deviation of the hole.”

The two holes are on the innermost of the circles. When the measuring device hit the bottom it registered that there was 1 degree of deviation from a straight-down hole. “That’s just a little more than one foot variation from a perfect vertical,” says Joe Large.

The Milford well is located on property belonging to the Milford Hutterite Colony. Milford was the first colony in the state of Montana. Each day, there was a steady stream of Hutterites walking to the drill site, which was across Highway 287 form the colony.

“Do you think they will find oil?” the Hutterites ask when they see me on the site. On Saturday evening it seems that most of the colony has come out to check the well’s progress. The men gather in a group, the women in another. Teenagers and younger kids congregate in another area.

Two of the Hutterite men walk over as I shoot photos of the rig hand “tripping the bit.” As the men talk about the rig, some youngsters gather around, pointing to the rig and discussing the situation in German.

As I move closer to the rig to get some close-up photos of the rig hands, the Hutterite women walk over and talk about working on an oil rig. “Those are some hard workers,” one of the young ladies comments, nodding toward the raised floor where the crew are working. “It looks like a tough job.”

One of the Hutterite women asks, “Have you ever worked on an oil rig.”

“No,” I reply. “But it is tempting.”

Geological Society Has Presentation On Southern Alberta Bakken

Geophysicist Eric Johnson Sun Times photo by Darryl L. Flowers
By Darryl L. Flowers

Last Wednesday Billings Geophysicist Eric Johnson spoke to a full house at the Petroleum Club in Billings regarding oil exploration along the Eastern Slope of the Rockies.

The occasion was a regular monthly presentation of the Montana Geological Society.

According to the MGS’ Jay Gunderson, the monthly gatherings typically bring in 25-35 people. 48 showed up for Johnson’s lecture.

Johnson told the crowd that the oil in the Cut Bank oil field in Glacier County has been determined to have originated in the Bakken System. The Cut Bank oil was found at a much shallower depth than the Bakken since the formation has fractured in a zone along the Rockies known as the overthrust belt.

“There’s no reason not to expect Bakken oil in NW Montana,” said Johnson. “Landslide Butte has more shale than Elm Coulee.” Landslide Butte is located in Glacier County, to the northeast of Browning. Elm Coulee is the legendary Bakken oil field in eastern Montana, the area of some of the most prolific wells in the state.

Addressing the issue of why exploration firms drilling in NW Montana have had difficulty finding the sweet spot while Canadian firms such as Shell Canada, DeeThree and Crescent Point enjoy success on the north side of the border, Johnson commented, “There is something going on as you cross the [Canadian] border, and I don’t think it’s the geology that has changed.”

Limited production start-up at In Amenas

Photo: Kjetil Alsvik / Statoil

Algerian facility was target of terrorism…

Published: Saturday, February 23, 2013 9:55 AM CST

On Friday, the In Aménas gas facilities in Algeria operated by the Joint Venture partners Sonatrach, BP and Statoil, initiated a limited production start-up. The news came in a press release issued by Statoil.

Production from the plant’s train 1 was started-up following a detailed review of technical integrity, security, and other conditions, and after the partners had concluded that the criteria required to ensure a safe restart of train 1 had been met. The remaining two production trains were damaged during the terror attack, and will not be put on stream until it is safe to do so.

The physical inspection of train 1 was conducted by Sonatrach on behalf of the Joint Venture, and the documentation has been fully reviewed by both Statoil and BP.

“The Joint Venture has initiated a limited production start-up at In Amenas. We thank Sonatrach for the work they have done and continue to do on behalf of the Joint Venture, during this difficult time for everyone involved”, says Lars Christian Bacher, executive vice president for Development and Production International in Statoil.

During the production start-up phase, the facilities will be operated by Sonatrach on behalf of the Joint Venture. Statoil and BP staff will not yet be redeployed but technical specialists will provide support when needed, in line with strict security procedures established for short-term visits.

Statoil is currently in a close dialogue with Algerian authorities, Sonatrach and BP about the necessary conditions for full production and a redeployment of staff.

“The safety and security of our people is our utmost priority. We will take whatever time needed to conduct all required assessments and reviews and take all necessary precautions before we consider a re-entry of Statoil personnel,” says Bacher.

Coinciding with production start-up, Sonatrach will hold a commemoration ceremony at the In Amenas facilities Sunday 24 February in connection with the Algerian Day of Nationalisation of Hydrocarbons. A memorial monument with the names of the victims of the terror attack will also be unveiled.

LINN Energy and LinnCo to acquire Berry Petroleum Company for $4.3 billion

Published: Saturday, February 23, 2013 9:53 AM CST

LINN Energy, LLC, LinnCo, LLC and Berry Petroleum Company on Friday announced in a company press release the signing of a definitive merger agreement pursuant to which LINN and LinnCo will acquire all of Berry’s outstanding shares for total consideration of $4.3 billion, including the assumption of debt. The transaction, which is structured as a stock-for-stock merger of Berry with LinnCo followed by the acquisition of the Berry assets by LINN, is expected to be tax-free to Berry shareholders. This transaction represents the first ever acquisition of a public C-Corp by an upstream LLC or MLP.

Operational Highlights

  • Berry’s long-life, low-decline, mature assets are an excellent fit for an MLP/LLC;
  • Meaningful growth to LINN’s portfolio with increased geographic presence in California, the Permian Basin, East Texas, and the Rockies, as well as the addition of an attractive new core area in the Uinta Basin;
  • Production of approximately 240 MMcfe/d, increasing LINN’s current production by 30 percent;
  • Berry’s reserves are approximately 75 percent oil, which results in a meaningful increase in liquids exposure to 54 percent from 46 percent of proved reserves, pro forma as of December 31, 2012;
  • Proved reserves of approximately 1.65 Tcfe, increasing LINN’s estimated proved reserves by 34 percent;
  • LINN has identified additional probable and possible reserves at Berry of approximately 3.8 Tcfe;
  • Approximately 3,200 producing wells and more than 200,000 net acres; and
  • Potential for production optimization and cost savings.

Financial Highlights

  • The transaction is expected to be highly accretive to distributable cash flow per unit. In the first full year following closing, accretion is expected to be in excess of $0.40 per unit.
  • LINN plans to recommend to its board of directors an increase in the current quarterly distribution of 6.2 percent. LINN’s current quarterly distribution of $0.725 per unit, or $2.90 per year, would increase to $0.77 per unit, or $3.08 per year. The recommended increase is anticipated to take effect in the quarter immediately following the closing of the transaction, which is estimated to occur on or before June 30, 2013.
  • LinnCo’s current estimated annual dividend of $2.84 per share includes a reduction of $0.06 per share for taxes, which LinnCo now estimates to be zero for 2013. Therefore, management estimates that the LinnCo dividend per share for the quarter ended March 31, 2013 will increase 2 percent from $0.71 to $0.725 per quarter, or $2.90 per share on an annual basis.
  • LinnCo’s management intends to recommend to its board an increase in LinnCo’s dividend by 8.5 percent following the closing of the transaction to $3.08 per share on an annualized basis, which includes the $0.18 per share increase in LINN distributions.
  • Due to the significant accretion expected from this transaction, LINN’s coverage ratio for the second half of 2013, assuming the transaction closes on or before June 30, 2013, is expected to be approximately 1.20x including the anticipated distribution and dividend increases.
  • All stock consideration and greatly increased size are expected to result in significantly improved debt metrics.
  • As part of the transaction, Berry will be converted into a limited liability company and then it will be contributed to LINN in exchange for LINN units. This arrangement allows LINN to own Berry’s assets in a pass-through entity without any immediate payment of tax.

“This transaction creates tremendous value for LINN Energy, LinnCo and Berry equityholders. We are pleased to have been able to achieve such a mutually beneficial outcome,” said Mark E. Ellis, Chairman, President and Chief Executive Officer, LINN Energy. “Berry’s assets are an excellent fit for LINN, and we believe this transaction generates significant accretion to our distributable cash flow per unit.”

“We have great respect for what the Berry management team has accomplished and consider the Berry employees to be an important part of this transaction,” added Ellis. “We welcome them to LINN and believe that together, we will be positioned for great success in the future.”

Robert Heinemann, President and Chief Executive Officer, Berry Petroleum Company, said, “Today’s merger announcement with LINN Energy marks the beginning of a new, important chapter in our company’s history. Berry and LINN have demonstrated the ability to prudently grow their businesses while delivering value and returns to their respective shareholders and unitholders. Berry’s portfolio fits well with LINN’s structure and asset base, and the combination of the two companies will create one of the largest independent E&P companies in North America. This transaction consideration delivers substantial value to Berry shareholders with the opportunity to participate in the upside potential of the combined, growing company.”

Transaction Terms & Structure

Under the terms of the agreement, which was unanimously approved by the boards of directors of LINN Energy, LinnCo and Berry, LinnCo has agreed to issue 1.25 common shares for each common share of Berry outstanding prior to the merger. The consideration to be received by Berry shareholders is valued at $46.2375 per Berry share based on LinnCo’s closing price as of February 20, 2013. This represents a premium of 19.8 percent to the Berry closing price on February 20, 2013, and a premium of 23.1 percent to its one month average price at that date.

The acquisition, which is expected to be tax-free to Berry’s shareholders, is structured as a stock-for-stock merger. In connection with the merger Berry will be converted into an LLC. Upon completion of the merger, LinnCo will contribute the Berry assets to LINN in exchange for LINN units.

In connection with approval of the contribution from LinnCo to LINN Energy, the boards of directors of each company formed a conflicts committee to evaluate any potential conflicts that may arise between LINN and LinnCo. To ensure the independence of each of the conflicts committees, two directors resigned from the LinnCo board of directors to serve on the LINN conflicts committee and two directors resigned from the LINN board of directors to serve on LinnCo’s conflicts committee. In addition, in connection with the transaction, one representative of the board of directors of Berry will be appointed to the board of either LINN or LinnCo.

The transaction is subject to the approval of the shareholders of Berry and LinnCo and the unitholders of LINN Energy, as well as customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The transaction is expected to close by June 30, 2013. The combined company will be headquartered in Houston, Texas.

2013 Estimated Cash Distributions (Subject to Board Approval)

First Quarter Second Quarter Third Quarter Fourth Quarter
Quarterly $0.725 $0.725 $0.77 $0.77
Annualized $2.90 $2.90 $3.08 $3.08
First Quarter Second Quarter Third Quarter Fourth Quarter
Quarterly $0.725 $0.725 $0.77 $0.77
Annualized $2.90 $2.90 $3.08 $3.08

LinnCo Estimated Taxes

In order to avoid immediate tax on LINN’s acquisition of the Berry assets, LinnCo incurred a deferred tax liability. Because of the incremental costs for LinnCo resulting from this deferred tax liability, LINN has agreed to pay LinnCo $6 million per year for three years (2013, 2014 and 2015) or roughly $0.06 per LinnCo share. Due to the significant estimated shield provided by LINN to LinnCo, LinnCo’s cash tax liability is estimated to be zero for the last two quarters of 2013. In future periods, assuming current estimates for taxable income and capital spending, management estimates that LinnCo’s tax liability will be in the range of 2 percent – 5 percent of dividends paid, which is the same as the estimates provided in the prospectus for the LinnCo IPO. Therefore, this transaction is not estimated to give rise to any additional tax liability for LinnCo over and above the guidance that was previously provided. LINN’s management and board have also agreed to evaluate the need for any additional payments from LINN Energy to LinnCo should taxes be higher than expected.

Senior Notes

LINN expects that the completion of this transaction will trigger change of control provisions in the indentures governing Berry’s existing senior notes. These change of control provisions entitle holders of the notes to receive 101 percent of par for the notes plus accrued and unpaid interest from a change of control offer related to each series of notes. LINN expects any of Berry’s notes not tendered pursuant to the change of control offers to remain outstanding following the transaction, subject to any opportunistic refinancing of such notes it may pursue in the future based on market conditions.


Citigroup Global Market Inc. acted as exclusive financial advisor to LinnCo, and provided a fairness opinion to the LinnCo board of directors; Latham & Watkins LLP acted as legal advisor to LINN Energy and LinnCo. Greenhill & Co., LLC provided a fairness opinion to the conflicts committee of the LINN Energy board of directors; Akin Gump Strauss Hauer & Feld LLP acted as legal advisor to the conflicts committee of the LINN Energy board of directors. Evercore Partners provided a fairness opinion to the conflicts committee of the LinnCo board of directors; Locke Lord LLP acted as legal advisor to the conflicts committee of the LinnCo board of directors. Credit Suisse Securities (USA) LLC acted as exclusive financial advisor to Berry Petroleum Company and provided a fairness opinion to the Berry Petroleum Company board of directors. Wachtell, Lipton, Rosen & Katz acted as legal advisor to Berry Petroleum Company.