Motley Fool has an interesting piece this week. The lede:
I think that LINN Energy LLC and, by association, LinnCo LLC are hiding something big. And that's a good thing. Because that means
investors still have a chance to invest in either company before the big
reveal.
So, what is LINN Energy hiding?
The remarkable untapped value of its horizontal acreage in Texas'
Permian Basin. The company believes that it holds about 60,000 net acres
that have horizontal potential for the Wolfcamp formation.
Later, in the article, a bit of asset juggling:
The reasons this is still a big secret is because the drilling shift
from vertical to horizontal in these areas of the Permian Basin is still
in its infancy. That's actually creating some crazy shifts in reporting
as one of LINN Energy's peers, for example, was forced to erase 185 million barrels of oil
from its books as it can't yet book the horizontal inventory because
there isn't enough data. That said, early data is so compelling that the
company believes that it will likely add back nearly 600 million
barrels of oil equivalent over the next few years as it drills more
horizontal wells. Similar horizontal potential exists at LINN Energy and
by association is available to LinnCo investors as well.
But this is pretty easy to understand:
Just today LINN Energy's partner on its first horizontal well,
Diamondback Energy, announced that it was adding to its acreage position
in the play. The company is picking up 2,825 net acres in the play, and
it's paying $174 million for those acres. The company hopes to
eventually buy out its partners on the 6,450 gross acres that are
associated with this asset package, and it's willing to fork over a
total of $397 million to buy out those partners.
To put those numbers into perspective that's more than $61,500 per acre.
Actually, I did the math. The
Motley Fool numbers are slightly off: $174,000,000 / 2,825 acres works out to $61,592.92 which is closer to $61,600 than $61,500. And it's that kind of math that gets analysts in trouble. LOL.
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