LINN Energy still awaits the SEC's final verdict of its complex deal with affiliate LinnCo to buy Berry Petroleum . However, just because the company is waiting doesn't mean it's not busy pursuing its next big deal. In fact, LINN recently announced that it was spending slightly more than half a billion dollars to add to its assets in the Permian Basin. A deeper look at that deal reveals there is a lot of potential for high-margin oil.

The future of this field is filled with water
The average oil field in America doesn't give up all of its riches. In fact, oil companies can typically only extract about 30% of the original oil in place. And only about half of that amount can be extracted through the natural flow from conventional drilling. The next phase of recovery is to use an enhanced oil recovery technique called waterfloods. In fact, one of the important aspects of the Berry Petroleum transaction is that Berry is an expert in an enhanced oil recovery technique  that involves turning water into steam.

The East Goldsmith Field that LINN recently bought is a perfect candidate for waterfloods targeting the deeper Clearfork formation. LINN believes this could unlock another 24 million barrels of oil equivalent, which would be a big boost to the proven reserves of 30 million barrels of oil equivalent that LINN purchased. The following slide from a recent investors' presentation details that potential.


Source: LINN Energy Investor Presentation (link opens a PDF)

As the company points out, it has several areas of future growth beyond the traditional infill drilling. Future waterfloods in the Lower Clearfork are just the start. That's because LINN's options to extract more oil from this asset don't end in water.

This greenhouse gas could unlock even more oil
When it comes to enhanced oil recovery techniques, waterfloods are usually the secondary recovery method oil companies use for extraction. After that, many fields can successfully be flooded with carbon dioxide to get even more oil out. In fact, according to the U.S. Department of Energy, carbon dioxide could be a key component to unlocking the more than 89 billion barrels of oil trapped in U.S. onshore reservoirs. For some perspective on that number, current proved oil reserves are just 29 billion barrels.

The Permian Basin, where East Goldsmith is located, is a prime area for carbon dioxide floods, which have actually been successfully used since the 1970s. Occidental Petroleum actually produces about 60% of its Permian oil by using carbon dioxide. It's the company's most profitable business, which is a reason why the carbon flooding future of East Goldsmith really appeals to LINN.

LINN is actually getting on-the-field education in an EOR project utilizing carbon dioxide thanks to the joint venture agreement it signed with Anadarko Petroleum last year. In the deal, LINN received a 23% interest in the Salt Creek field in Wyoming. The most important aspect of that deal is that LINN is able to benefit from Anadarko's extensive carbon dioxide experience. It can then transfer the knowledge gained to its other assets, including East Goldsmith. In some regards, that deal with Anadarko helps to set up LINN to unlock even more oil from its existing assets as well as those it will acquire in the future.

Investor takeaway
LINN Energy has become a battle ground stock this year as many have questioned its accounting practices, which have also caught the SEC's eye. What's most important for investors to understand is that at its core LINN is still an oil and gas company. Its mission is to buy the mature oil and gas fields that no one wants and turn these fields into income-producing machines. One of the keys to its ability to do that will be using EOR techniques like waterfloods and carbon dioxide to unlock the oil that's still trapped. At some point all of the noise will fade away and investors will be left with a company that is primed to deliver years of steady oil and gas production from which investors can collect steady income.

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The article An Even Deeper Look at LINN Energy's Latest Buy originally appeared on Fool.com.

Fool contributor Matt DiLallo owns shares of Linn Energy, LLC and Linn Co, LLC . Matt DiLallo has the following options: short November 2013 $25 puts on Linn Co, LLC . The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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