I just had the opportunity to look over a fairly comprehensive inter-company report on upstream MLP's put out by the research dept of one of the larger investment houses who specializes in MLP's. This was meant for their financial advisers tor recommend from. I will try to summarize the report. They had only 3 upstream MLP's listed as strong buys. LINCO, MEMP and EVEP. LNCO and MEMP i could understand from my own DD but ,EVEP kind of took me by surprise. In a nutshell, they feel LNCO is financially strong and can deliver a 1.0 dist. coverage with $60 oil. At $55 oil the coverage drops to .95. They liked the yield, solid balance sheet, only 30% oil production, hedging -especially 2015, One other was the recent asset swaps will reduce capex spending and reduce production decline rates. They indicated capex spending will be reduced $200M and therefore decrease cash burn. This is not an attempt to pump although I am a long time LNCO holder. You may or may not believe me but, if you are a long this may give you a little comfort when you are continuously under attack by short sellers.
Fellow longs, I am writing this fthis ppost to help insure you than LNCO is a safe investment. I have spent many hour evaluating almost e very aspect of this company and even though I am down substantially, I still have faith in it..
1. The projected sales have went through and that payed the bridge loan and reduced borrowing under it's credit facility.
2. LNCO has roughly $2,.4 billion in financial liquidity in undrawn it's revolver. More than enough to meet it's financial needs for several years at $55-60 oil.
3.While leverage still remains above optional levels based on RJ's debt forecast 1Q15 EBITIA, LINN'S leverage ration remains at about 4.5x. However, even with no acquisitions, or equity issuance over the next 2 years it is foretasted the leverage ratio will stabilize in the 3Q15 and flat-line in 2016.
4. Utilizing strip pricing LINN has plenty of cash to meet it'dd financial covenants. In fact based on current estimates it is foretasted that just based on organic growth the covenant cushion is expected to increase over the next 12-24 month s.
5. With cost tweaking and Capex spending reduced in 2015 estimated EPU and cash flow/unit estimates are being raised to $0.78 to from $0.72 /unit. and $3.17/unit from $3.12. From historical data it is estimated that lease and production cost could be reduced by up to 20% as new contract turn over to reflect current oil.
LINN has roughly a $1.3 billion hedged book. Over 50% of it's oil is hedged the next 24 months at north of $90/bbl and those wells have a shallow production -5%-decline rate. Gas is hedged north of $5/MMcf and
$4.50/MMcf over the next 24 months.
5. With extreme volatility of energy space and risk premium associated with the current price environment one could expect LINN to level out at 7 to 8 x 2015 forecasted EBITIA.. This is near the bottom of the traditional upstream MLP 7-12 range.
I know this evaluation may be questioned and I am open to all observations and comments.
As a certified neurosurgeon, I would recommend you have a lobotomy. Your brain is obviously not functioning properly. I would do it for you for free, but I will be playing at Carnegie Hall during the holiday season. In January I will be helping Ted Turner manage his buffalo herd. I also happen to be an expert veterinarian.
The second major factor is cost structure. Most of the media and energy press always claims US production is high cost. The reality is in fact different. Middle East cost most often cited are the cost to get a barrel out of the ground, which makes OPEC look omnipotent. However, real production costs for a commodity like oil is the cost to deliver it to the refinery. That includes getting it out of the ground AND transportation. It costs the Saudis $25/barrel to deliver oil to the tankers. It costs another $14-20/barrel to ship it to the refineries in the US, China, Japan, and Europe. Kuwait & Emerates are the same. Iran has loading costs of $35, Iraq $30. With shipping, Saudi/kuwaiti crude "costs" $40-45/barrel delivered with no profit. Iran is $50-55. Russia has a delivered cost of $55-60. Venzuela has a delivered cost to US refineries of about $55, but only a few refineries can use their super heavy goo. US conventional oil has an average delivered cost of $40/barrel. US shale has a cost of $45/barrel. Canadian oil sands heavy crude has a cost of $60/barrel. So they are competative on base costs. However, the OPEC and Russian oil production is government owned or controlled and the oil profits must pay for government budgets. Adding this into the cost mix, Saudi has a cost of $75/barrel, Iran $110/barrel, Russia $105/ barrel, Venezuela $142/barrel. US and Canadian producers have some taxes that average about $6/barrel.
Oil costs would have to drop to $60/barrel to start taking out Canadian production, $50 to take out US shale. The simple reality of the world today is US/Canadian/Mexican oil production is in fact the lowest cost production AND they have their own market next door. The price war can not take out the US oil production and the Saudis know it.
Are we even talking about the same company here? I never saw anywhere they said they increased distributions and obviously they paid out more in distributions because of the increased share count. When did you start doing research into this company...like yesterday?
People scream and scream and scream - when the fact is it really is as simple as buy low, sell high. This is a steal. An incredible yield - great long term - stable company. Yes - hedgeeye did it in last year - even though it all proved false - and now people fear the drop in oil. With the price this low - and the yield this high - it is practically guaranteed......People need to learn to welcome these big moves up or down. They are the clearest buy and sell signs in the world.......
Sentiment: Strong Buy
From the Q3 CC : "First, LINN's production mix in the third quarter was 48% natural gas, 36% oil, and 16% NGLs. Pro forma, for all announced transactions, accept the final divestiture of remaining Midland Basin properties, a very preliminary estimate of our production mix shows approximately 55% natural gas, 35% oil, and 10% NGLs."
So they are MUCH less exposed to oil prices per se than this crazy market is assuming.
Add to that the strong hedges : "Second, we are hedged approximately 90% to 100% on expected natural gas production in 2015 and 2016. On the oil side, we are hedged approximately 60% to 70% in 2015 and between 50% and 60% in 2016 on expected production."
Basically the "bad" exposure is the 35% oil production that is unhedged. So in 2015 that would be the UNHEDGED 40% portion of 35% oil, or a net 14% of 2015 oil production unhedged. Hardly a catastrophic situation.
The current "market" price of oil is also virtually ignoring what to me is a very real chance of a significant geopolitical disruption caused by the Saudis intractable stance. Commando raid on the Ghawar field and oil is back over $100 overnight. You think Putin and Iran aren't already thinking along those lines?
It seems unlikely to me the Saudis can hold this line with no consequences for a really protracted period. Even if the price of oil does stay low for a few quarters, based on the numbers laid out above things are nowhere near as dire as the panic selling is suggesting.
All my opinion but I bought LNCO today based on it.
Sentiment: Strong Buy
How come the street keeps rehashing the same old sell story. They keep releasing it like it's a new down grade. 3 Sell-Rated Dividend Stocks: ARP, LNCO, NAT listed every few days.
Where did you learn to spell?? Maybe you should go back to coloring inside the lines and let the big people write on these boards. At this stage in your life, I think it's a little much for you.
in hopes of getting more shares later at a discounted price, then it would most certainly go up from here and I'd be double stuck with a huge loss. At this point, I'll just ride out the storm and hope for the best. Things will stabilize sooner or later and I believe that LNCO/LINE are way, way, way, way, way, way, way OVERSOLD! Looking at the landscape of stocks out there -- I would put my money in LNCO at this price and plan to hold for a long time. Of course, my money is deeper and deeper in the red every minute these days -- so what do I know?!?!? Nothing apparently! Here's for having guts of steel!
Watch Crammer (Yes, I spelled his name wrong on purpose, because he "crams" stocks) now reverse his position and say "buy, buy, buy." I don't know how that idiot has a program? His strategy. Buy high, sell low?
what a joke a "Big" trader like you looking for information from a msg board What a laugh . Tks I needed a good laugh today!
... I think that I'm a genius for not adding to my position earlier, and that if it drops again, it'll be a great buy and I'll pick up some more. Then when it does drop again, it scares me and I don't buy after all. But I think I'm a genius for not buying more earlier.
Round and round we go.
I like the dividend, but I dislike this wild ride. Especially since it's mostly down. Now I wish I'd sold out last year, when the thought first occurred to me. Should I cut my losses and get out now? Should I ride it out and watch my principle drop weekly? Should I think wow, it's a great buy at this price and get more?
I really don't know what to think. My guess is that oil prices (and LNCO) will go back up next year. (Good for me as a stockholder, bad for me as a consumer.) I guess I'll just sit tight for the time being, but I don't feel good about it. This is the only stock in my portfolio that's currently showing a loss (including dividends!) since I bought it.
The question of bankruptcy seems to pop up here. LNCO has no debt. This entity is a mechanism to trade and acquire assets. Linn energy asset value exceeds their debt. Even at $50 a barrel, Linn energy has break even cash flow for 18 months. I'm not sure how any of these fact equate to bankruptcy.
Sentiment: Strong Buy
They are 60 to 70 % hedged on oil next year and 50 to 60% hedged in 2016. They are 90 to 100% hedged on gas both years. So the reality is they are closer to 85% hedged next year and 75% in 2016 when you factor in they are more than 50% gas. As someone else pointed out they could start hedging 2017 production in the $70's right now if they choose. Also oil won't go to zero so its not like they will lose 100% of their unhedged cash flow chances ae they will lose less than 50% of that cash flow. So my take is they simply are not as vulnerable to oil prices as the market is factoring in right now. Obviously if oil stays down for several years than they are in trouble along with most everybody else. Even if it does come to that I believe weaker hands than line will be shaken out and the market will self correct before they are ever in any real serious danger. Chances are this will be a relatively short term event and whatever losers there ends up being wont be large well hedged players like line.
I'm not refering to the CASH received on the asset sales, but to the hedges in place for the next two years. When oil drops, the value of the hedges increases, by MORE than the reduction in current income from sales of oil and gas. If LINE/LNCO ever needs cash, the hedges can be liquidated for a sum that increases as the price of oil/gas declines.
Don't believe me? Look at the hedge accounting in the last filed 10-Q.
Sentiment: Strong Buy
As a CPA myself, you may want to check the ethics rules in the State where you hold your license. Your comment appears to me to violate those standards.