LINN Energy and LinnCo published a press release on Friday, January 2nd announcing the firm was cutting capex for 2015 by more than 50%, reducing its dividend by 56% and had signed a letter of intent with Blackstone’s GSO Capital Partners for a strategic alliance including $500 million funding for oil and gas development.
Shares of LINN Energy are down as much as 6.2% in premarket trading.
Major capex reduction at LINN Energy
In the statement, the firm noted that the BoD had approved a 2015 budget including a 53% reduction in oil and natural gas capital expenditures. That means 2015 capex will be reduced to $730 million from approximately $1.55 billion in 2014. Of note, the firm expects to fund its 2015 oil and natural gas capital program, along with the dividend, from internally generated cash flow.
Statement from Linn Energy CEO
“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. 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,” commented Mark E. Ellis, Chairman, President and Chief Executive Officer of the oil and gas producer.
Strategic alliance with GSO Capital Partners
Linn also announced on Friday that it has signed a non-binding letter of intent with GSO Capital Partners LP, the credit platform of The Blackstone Group L.P. in order to fund additional oil and natural gas development. GSO and its affiliates have committed up to $500 million over 5-years to fund drilling programs on locations provided by LINN.
Based on asset characteristics and return expectations, GSO will fund 100% of the costs associated with new wells drilled under the DrillCo Agreement and will receive an 85% working interest in these wells until it reaches a 15% internal rate of return on annual groupings of wells, while LINN is expected to receive a 15% carried working interest. When it achieves the internal rate of return target, GSO’s interest will be cut to 5%, while LINN’s will be boosted to 95%.