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Linn Energy, LLC (LINE) Message Board

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  • badbernanke badbernanke Nov 23, 2008 12:18 PM Flag

    10Q on Counterparty Risk

    Vol96, I am not sure that your understanding of the hedge disclosure is completely accurate although I agree with your comments about the effect on cash flow of having no hedges. I have posted below an explanation of what I understand the hedge footnote means:

    LINE really has benefitted from its hedging on two fronts. One, it has a very high percentage of production hedged, which not only is good for cash flow, but should also keep LINE's credit line base solid even with the lower market prices for commodities. Two, it was wise to put basis differential hedges in place for its mid-continent production due to the extreme divergence between NYMEX and Waha hub prices.

    Management was wise to have immediately replaced the LEH hedges when LEH defaulted and fortunate that it had a war chest from the sales of Applalchia and Verden properties to fund that action. Replacing those positions today would be much more costly.

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