LINN Energy, LLC
Mark W. Ellis
TWST: Please start with a brief company history and an overview of business operations and strategy today, to give readers an introduction to LINN Energy.
Mr. Ellis: The company was founded by a gentleman by the name of Mike Linn, and it wears his name. Mike founded the company in 2003 with some private equity money behind him as an Appalachian-based company focused on Appalachian assets. About January 2006, it was still a very small company, but we went public as the first publicly traded LLC with the understanding that we would grow west of Appalachia at that point in time. When we went public, I would say we were probably about a $500 million to $700 million company. Then, we rapidly grew west of Appalachia, penetrating into the Mid-Continent area of the U.S. and reaching out all the way to California. Since that time, we've added a number of various transactions to grow the company.
As a publicly traded LLC, the base strategy was to accumulate and acquire mature assets, optimize the cash flow from those assets, and return a substantial portion of that cash flow to our unitholders in the form of quarterly distributions.
LINN has sound operating capabilities and utilizes the financial markets, such as hedging our oil and natural gas production, to take away a lot of price volatility. This helps provide a stable cash flow stream and distribution. It also helps position the company to grow our distribution. That's at the core of this company and what's unique about LINN or any upstream MLP. It separates us from what other pure E&P growth-related companies do.
We're currently sitting at an enterprise value of about $12 billion. In the last six years, we've grown from around $700 million in value to around $12 billion in enterprise value. That's dramatic growth.
In the summer of 2008, we elected to exit Appalachia. We sold all those heritage assets that Mike formed the company around, mainly for balance sheet management. We also thought there were better opportunities to grow the company west of Appalachia.
We're headquartered now in Houston, and a majority of our focus is the Mid-Continent U.S. If you look at our asset mix right now, probably 74% of our reserves are within the Mid-Continent areas of Oklahoma, Texas Panhandle and Southwest Kansas when we close the agreement to purchase BP assets in the Hugoton Basin. The next largest producing area for us would be the Permian Basin, which was a new area for us. We got into the Permian in 2009, grew it in 2010 and continued to grow that position. Another concentrated operating position we have is up in the Antrim Shale of Northern Michigan, which came to us through an acquisition of HighMount's interest in heritage Dominion assets up there.
We're also in a nonoperating position in the Williston Basin, which is one of the most premier oil basins in the U.S. right now. We are behind a couple of very large operators up there. And then, we have a small operation out of California - a very, very stable and great cash flow-generating asset in the Eastern L.A. Basin, Brea area. So that's the mix of assets.
We're currently sitting at about 4.2 Tcf of reserves. I don't know if that means a whole lot to you from a size standpoint, but I would tell you it's a pretty even balance between liquids, being oil and natural gas liquids, and natural gas. There is a lot of dialogue out there by various different E&P companies about their oil and natural gas mix, and we're really pretty balanced. It's about 46% on the liquid side, about 54% on the gas side. And that's pretty consistent with where our production is as well.
The other thing that's important to a company like ours is the overall reserve-life index. Our reserve-life index is around 21 years. That means we have a fair number of very low-decline, mature assets that drive our base cash flow generation, which is good because one thing you try not to build into this particular business model is too much capital intensity from a development standpoint.
TWST: The company has been growing significantly. What did you achieve during 2011 and how did you do that?