Linc Energy Limited (ASX:LNC) Completes Purchase of Texas and Gulf Coast Oil Fields

Brisbane, Oct 13, 2011 AEST (ABN Newswire) - Linc Energy Ltd (ASX:LNC) is pleased to announce that its wholly owned subsidiary, Linc Gulf Coast Petroleum, Inc. ("Linc Gulf Coast"), has finalized its purchase of oil and gas assets from ERG Resources L.L.C. ("ERG").

Finalizing this purchase of Oil assets from ERG marks the end of a long and detailed due diligence and negotiation process.

The 13 oil fields and production facilities purchased from ERG are located in Texas and Louisiana and are within the Gulf Coast Onshore and Inland Waters Regions. The purchase includes all related infrastructure such as pipelines, tank batteries and processing facilities. All of the fields are either salt domes or geological structures related to deep-seated salt movement.

Independent reports indicate that the fields have the potential to increase recoverable oil by up to 24 million barrels via the optimisation of current production and additional drilling operations.

Cumulative production for the 13 fields is estimated to be over 700 million barrels of oil to date with a regional recovery factor of approximately 40%, indicating potential to achieve substantial increases in production from Enhanced Oil Recovery (CO2 flooding).

Texas Oil Fields

Eleven of the fields are located along the Texas Gulf Coast and Texas Inland Waters areas. Significant oil production in Texas is attributed to the Barbers Hill, High Island, Port Neches, Atkinson Island and Cedar Point fields. Linc Energy anticipates additional production being attributed to these areas, with particular focus being paid to increasing production from Barbers Hill, Port Neches and the Black Bayou assets.

Louisiana Oil Fields

The Black Bayou field and portions of the Leeville field are part of the ERG assets in Louisiana. Linc Energy plans to aggressively drill in the Black Bayou field in the coming 12 to 24 months to build production.

Key Terms of the Agreement

The purchase price of the assets is US$236 million plus adjustments of US$25.4 million as part of the capital cycle program during the due diligence period.

The assets purchased consist primarily of oil and gas leases, property interests (including all related infrastructure such as pipelines, tank batteries and processing facilities) and wells (including shut-ins) upon the Texas and Louisiana oil fields which were held directly by ERG or by three wholly-owned subsidiaries. Linc Energy has acquired the assets held directly by ERG and the Louisiana subsidiaries.

The total area of these leases is approximately 13,400 acres held across 156 oil and gas leases.

To support this acquisition and future expansion plans in the USA Gulf Coast region, Linc Energy has assumed the ERG office space in Houston, Texas. Further, Linc Energy has employed certain of the experienced team of professionals who were formerly employed with ERG, in order to facilitate a seamless transition.

Funding

Linc Energy's wholly owned subsidiary, Linc Gulf Coast Petroleum, Inc., has entered into a US$300 million credit agreement with BNP Paribas. The Credit Facility provides for maximum borrowings of up to US$300 million, with an initial borrowing base of US$130 million. The Credit Facility has a four-year term and the borrowing base will be re-determined semi-annually. Current borrowings bear interest at approximately 3.1%. As the borrowing base increases, additional draws may be used to provide working capital for future lease acquisitions, exploration and production operations, development (including the drilling and completion of wells) and for general corporate purposes.

The Credit Facility is non-recourse to Linc Energy Ltd. The Credit Facility is secured by the ERG assets acquired, and Linc Energy's Wyoming oil field assets acquired in March 2011.

Linc Gulf Coast Petroleum has also entered into a hedging arrangement with an average price of US$86.75 per barrel for a portion of the production through 2015 to ensure that cash flow is sufficient to cover interest and other ongoing expenses. In addition Linc Energy's oil sale price is based on a premium to the Nymex, which equates to oil production from the ERG assets being sold currently at over US$90.00 per barrel. This hedging arrangement allows for Linc Energy to protect against recent market volatility while still allowing for participation in commodity price appreciation as the Company grows its production base.

Peter Bond, Chief Executive Officer of Linc Energy, said, "This ERG acquisition gives Linc Energy traction in one of the premier oil and gas arenas of the United States and a base from which to expand. It also furthers our near term focus of ensuring Linc Energy is cash flow positive in the near term."

"I am very confident of the underlying value and quality of the ERG asset package and our ability to use them as a cornerstone to execute Linc Energy's oil production growth program in the USA. At the end of the day we are buying these assets to position Linc Energy to take advantage of both an immediate cash flow opportunity and the potential upside from medium to long term oil pricing."

"I am also very proud of our Linc Energy team, which worked tirelessly to ensure that this purchase was successfully closed."
"The new credit facility with BNP Paribas will further enhance and improve our flexibility in the execution of our drilling and overall growth strategy in the Texas and Gulf Coast region. The cost of capital at 3.1% means Linc Energy is better off borrowing on these operating oil assets than using our own cash, allowing Linc Energy to keep its cash invested in Australia earning around 6%. Linc Energy's treasury did a great job taking advantage of a strong Australian dollar and getting our cash into this transaction at an average of over $1.03 - a great effort in the face of what's been a very volatile period."

"This is just the first step in Linc Energy's plan to build out an oil production base of over 10,000 barrels per day in the Texas, Gulf Coast region, and it's a good start," Mr Bond said.

As part of the completion of the transaction, Linc Energy and ERG have agreed to discontinue all matters which were previously subject to dispute, including the proceedings previously filed by ERG in the Texas District Court.

Contact

Peter Bond Chief Executive Tel: +61-7-3229-0800 http://www.lincenergy.com