After a blockbuster first half of A&D activity for Linn Energy Inc., the Houston-based company is keeping its eyes on one of its prizes—Oklahoma shale.

Linn Energy said June 27 it signed an agreement with Citizen Energy II LLC to form Roan Resources LLC—a company focused solely on the Merge/Scoop/Stack shale plays in Oklahoma. Financial terms of the arrangement weren't disclosed.

Citizen Energy is a privately funded group based in Tulsa, Okla., according to the company’s website.

As part of the agreement, Linn and Citizen Energy will contribute roughly 70,000 net acres each to Roan as well as other upstream assets in Oklahoma's Anadarko Basin. The companies will equally split the equity interest in Roan, which will pursue an IPO by next year.

Roan’s 140,000 net acres are located in Canadian, Carter, Cleveland, Garvin, Grady, Kingfisher, McClain and Stephens counties, Okla. As of May, combined production from the assets was more than 20,000 barrels of oil equivalent per day.

“The formation of Roan is a game-changing transaction for Linn that creates a scaled Merge/Scoop/Stack pure play that competes with the very best unconventional opportunities in the country,” Evan Lederman, chairman of Linn’s board, said in a statement.

Roan's inventory includes more than 1,500 net drilling locations that Linn said represents more than 20 years of development in a six-rig drilling program. Additional upside is possible from down spacing and other prospective benches. The combination is also expected to facilitate longer lateral drilling.

Combined Acreage Position Map

Linn and Citizen operate a combined five rigs in the Merge with plans to jointly drill 58 gross wells in 2017. The companies will work together to optimize operations on their respective assets during the transition period following closing, according to Linn’s press release.

Roan intends to undertake an IPO in early 2018, subject to market conditions. Afterward, shares of the newly public company could be distributed to Linn shareholders, according to an investor presentation.

Roan will be independently managed with a CEO who will report to a separate board comprised of four Linn and four Citizen directors. The company expects to have no outstanding debt at closing and intends to establish a new revolving credit facility secured by its own assets.

On its own, Linn plans to develop its Chisholm Trail midstream business and about 105,000 net acres in the Northwest Stack Play, which the company will continue to own and control, Lederman said.

Following its exit from bankruptcy in February, Linn set out to reshape its portfolio through noncore divestitures, which have totaled more than $1 billion year-to-date from the sale of assets in California and Wyoming. Pro forma for the announced asset sales, Linn expects to pay off its outstanding debt.

As part of its transformation, Linn continues to market roughly 248,000 net acres in the Williston and Permian basins and elsewhere.

Linn said it expects the Roan transaction to close by third-quarter 2017.

Jefferies LLC was Linn’s sole financial adviser and Latham & Watkins LLP was its legal adviser for the transaction. Citigroup was Citizen Energy’s sole financial adviser and Thompson & Knight LLP was its legal adviser.

Emily Patsy can be reached at epatsy@hartenergy.com.

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