The Corporate Restructuring Report-Linn Energy Inc. (LNGG) & Riviera Resources Inc. (RVRA)
On August 7th, 2018, Linn Energy Inc. (OTC:LNGG) completed the spin-off of Riviera Resources Inc. (RVRA). The parent retained its 50% equity interest in Roan Resources LLC, an E&P company focused on MERGE/SCOOP/STACK play in Oklahoma. Riviera's assets comprise: 1) properties located in the Hugoton Basin, East Texas, North Louisiana, Michigan/Illinois, the Uinta Basin and Mid-Continent regions and 2) Blue Mountain Midstream LLC, a midstream company centered in the core of the Merge play in the Anadarko Basin. The spin-off was taxable and was confirmed in April 2018. The spin-off makes sense given divergent growth rates and cash flow profiles of the two businesses. Roan Resources is a high growth asset play vis-a-vis RVRA which comprises relatively mature assets with steady cash flows.
LNGG (ex RVRA) is a pure play E&P company with large contiguous acreage position in MERGE/SCOOP/STACK window in Oklahoma. De-risked multi-decade inventory, high rate of return (+75 to 100%), and expectations of rapid poduction growth (~2x by 2019) should drive cash flow generation & EBITDAX growth. LNGG is guiding for a YOY EBITDAX growth of ~97% in 2018 and 90% in 2019.
RVRA is an upstream and midstream business with an unlevered capital structure, low decline mature assets that generate significant free cash flow, coupled with intriguing potential growth opportunities. Further, the presence of high-quality midstream assets in rapidly growing MERGE play anchored with significant producer dedications should bolster growth.
Of the two, we prefer LNGG owing to more upside potential. In our view, both LNGG (ex RVRA) and RVRA are undervalued.
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