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Linn Energy, LLC Message Board

  • applebidforyhoo applebidforyhoo Aug 24, 2009 3:15 AM Flag

    Question for the experts on linns hedges:

    When I reviewed the latest 10q I saw unrelized gains were around 270M and unrealized losses around 850M.

    the net comes out to be around 550M in UNREALIZED LOSSES. Someone care to explain if this company has that much in unrealized losses when will they have to take those losses?

    Sure would like a clear and sensible explanation of this. Why do I get the feeling this is one massive ponzi scheme? They sell paper all the time and pay a juicy dividend with it...makes me think of NOVASTAR or ALLIED CAPITAL...just the oil version of them.

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    • This was a serious question can someone read into this and elucidate me.

      • 2 Replies to applebidforyhoo
      • This has been covered extensively in older posts. You could search from posts by "Badbernanke" and "Porciuscato".

        These are just accounging gains and losses that arise out of the big hedge book that LINE maintains. The book rises and falls with the prices of the commodities being hedged but the numbers are not important. What is important is free cash flow which is the actual money coming in with which LINE can pay the distribution and its expenses etc. LINE's coverage is over 1.1 and going higher.

        They have tons of cash.

        They are following a disciplined strategy to preserve the distribution and grow the company in the long term.

      • Unrealized losses are paper losses that may or may not come to fruition depending on conditions at the time the item is actually monetized.
        This might be gas in storage that was bought or produced at a higher cost than the hedges are contracted for, or it might be some other item such as real estate, etc.

        Maybe send an email to Investor Relations and ask for a detailed explanation?

    • Here's my understanding of the meaning of "unrealized".

      "the cumulative change in expected future cash flows on the hedged transaction.

      Unrealized loss= you hedged at 20 and the spot price on the day the filing was 25. You had an unrealized loss of 5. The cumulative change in future cash flows on the hedged transaction is -5.

      Unrealized gain = you hedged at 20 but the spot price on the day of the filing was 15. You had an unrealized gain of 5. The cumulative change in future cash flows on the hedged transaction is 5.

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