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ATHL Permian Deal a Good Mark for LINN

Quick Update Note...

After the close, Permian Basin pure-play E&P Athlon Energy (ATHL) announced a significant asset acquisition in the Permian, and it looks to be the best comp transaction to the assets that LINN Energy (LINE, LNCO) is trying to swap/sell to date. 

 

Details:

  • 5 privately-negotiated transactions
  • Combined cash purchase price: $873MM
  • 23,500 net acres in Martin, Upton, Glasscock, and Andrews County (Hz. Wolfcamp play)
  • 4,800 boe/d of current production, 67% oil
  • 1P reserves: 31 MMboe; PD reserves: 12.1 MMboe (39%)
  • 100% operated, 97% WI, 73% NRI

As far as we can tell, none of the acreage was acquired from LINN, though much of the acquired acreage looks very proximate to LINN and legacy ATHL’s positions (maps below).  That’s somewhat strange to us – LINN is actively marketing acreage in ATHL’s backyard, but ATHL acquires acreage from 5 other private parties instead…  One would’ve thought that ATHL would be in the running for some or all of LINN’s acreage.  Maybe ATHL has an appetite for more acreage, maybe not...  Or maybe LINN’s price was too high...  ATHL hosts a conference call tomorrow AM to discuss the transaction, perhaps we get more color then.

 

At $75,000/boe/d or $30/proved developed boe (reasonable metrics for the production/PDPs), the acreage goes for ~$21,800/net acre.

 

Putting LINN’s entire Permian package on these same metrics values the production (17,000 boe/d) at $1.3B, the acreage (55,000 net acres) at $1.3B, and $2.6B in total.

 

We think those numbers are in-line with the whispers out there - the rumor we heard today is that LINN management thinks they can sell/swap the entire package for $2B - $4B.  Still, this ATHL deal will likely be bullish for LINE/LNCO in the immediate term, as this deal gives some credence to the bull case, flawed as it may be.

 

ATHL Permian Acreage:

ATHL Permian Deal a Good Mark for LINN - linn1

Source: ATHL Presentation

 

LINN Permian Acreage:

ATHL Permian Deal a Good Mark for LINN - linn2 

Source: LINN Presentation

 

Kevin Kaiser

Managing Director



FLASHBACK: Kevin Kaiser Warns Investors on Kinder Morgan | $KMP $KMI

 

Energy Sector Head Kevin Kaiser warned investors to stay away from "mispriced" energy giant Kinder Morgan in this HedgeyeTV interview back in September. Since then, shares of Kinder Morgan (KMI) have fallen 11% with shares of KMP down over 5%.


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Poll of the Day Recap: Mo-Mo Meltdown?

Is that fear in the air? The sound of bubbles popping?

 

After notching new record highs recently, U.S. stocks have been falling with the S&P 500 yesterday posting its biggest three-day drop in two months (down -4.12% year-to-date). The action in the Nasdaq was anything but pretty with recent highflyers being brought down to earth.

 

Is a bigger correction at hand? We wanted your take on the market in today’s poll. So we asked: Do you think the S&P 500 will correct 10% or more by July 4th?


At the time of this post, the clear edge goes to the bears with 52% responding YES; 48% saying NO.


One responder who voted YES noted that, “the US economy is slowing more than consensus would like to admit, [and] consequently too many people [are] leaning the wrong way.”

 

Some YES voters said they believe the S&P 500 would only correct if earnings are as bad as predicted. And a few clarified that though they voted YES, if companies lower the bar, and then beat, then all bets are off and the “game can continue.”

 

One voter explained, “What should be working in terms of growth style factors isn't working.  Slow growth assets continue to lead as the macro data comes in weaker.  Bubbles popping.  Might need to do more research since…Gartman is bearish...”

 

Speaking of Gartman, several comments referenced the CNBC market guest Dennis Gartman, editor of the Gartman Letter, who said in a recent interview that he’s getting out of equities and sticking with cash and gold to ride out the recent pullback – "I got scared," he said.

 

“Gartman’s scared, so we just bottomed out,” wrote one NO voter.

 

And another: “Dennis Gartman just said he's scared and getting out of stocks and into cash. As clear a buy signal as any.”

 

Though one responder admitted they thought a correction would happen a long time ago, if earnings do reset, as another comment puts it: "Unleash the Krak…Yellen!"

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Cartoon of the Day: Over the Moon

Takeaway: Macro phase transitions can crush alpha, fast.

Cartoon of the Day: Over the Moon - Over the moon sm 04.08.2014

 

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REPLAY: 2Q14 MACRO INVESTMENT THEMES CALL

Earlier today the Hedgeye Macro Team, led by CEO Keith McCullough, hosted their quarterly Macro Themes conference call in which they detailed their Top 3 Global Macro Investment themes for 2Q14.  The Replay and Presentation Materials can be accessed via the links below.

  

 

Replay:  CLICK HERE

Presentation:  CLICK HERE

 

Q2 2014 MACRO THEMES OVERVIEW

  • #ConsumerSlowing: The cyclical increase in consumer spending growth from the 2009 lows is under pressure. Rising food prices and a stagnating USD continue to squeeze average Americans on the margin. Given the potential for further USD depreciation and a continuation of global commodity inflation as a real macro risk, we think U.S. consumption growth will slow as it bumps up against difficult compares heading into 2Q and beyond.
  • #StructuralInflation: Following up on our cyclical #InflationAccelerating theme, we are focusing now on structural inflationary pressures embedded in the U.S. economy. Much like in Japan, zero percent interest rate policy has fueled a broad-based portfolio re-balancing away from financing economic growth to reach for additional yield in slow-growth assets. This is fueling systemic underinvestment in both human and physical capital. However (unlike in Japan), the USD's long-term downward trend adds an additional layer of inflationary pressure due to an increased reliance on imported goods and services amid capacity constraints abroad.
  • #HousingSlowdown:  We have been big housing bulls over the last 18 months. But the party is ending. Asymmetry in being long has flattened.   Price follows demand on a lag and demand is slowing as affordability declines, regulatory changes drag on liquidity, and institutional interest ebbs.  We walk through our updated view on the Supply/Demand/Price dynamics prevailing in the housing market and our forward outlook for prices. 

 

- Hedgeye Macro


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%
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