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Linn Energy, LLC (LINE) Message Board

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  • lexpress56 lexpress56 Jan 20, 2010 3:16 PM Flag

    EVEP vs. LINE

    Richard:

    I have owned them both and settled on Linn as the better choice given its size, hedging, and internal growth prospects. Certainly, EVEP has performed better over the limited time period subject of your note, but realize EVEP is more volatile and had fallen relatively more than Linn had as of your starting point -- look back a few years and see where EVEP had a higher PPS because its dividend/distribution was 20% higher ($3.00 vs $2.52). In other words, your "decision point" was coincidentally when the PPS of the two companies was about the same, which historically has not been the norm.

    As for the past year, EVEP paid down a bunch of debt by dilution that has yet to work its way through the financial statements (is it better to save 10% in interest costs on debt by paying 13% distributions?). In contrast, Linn has increased debt to acquire more accretive property interests at what will likely prove a very opportune time while the asset market was at a near low point.

    Rather than credit EVEP with making better management decisions, credit EVEP with a healthy dose of luck that oil prices rebounded as high as they did making its failure to hedge as high a percentage of production as Linn did a "neutral event" whereas it could have been costly. Just my two cents. (From what I can tell, they both look good going forward -- along with ENP, which is even more "oily.")

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    • I own about the same amount of LINE-EVEP_-BBEP - All 3 IMO have metrics that are attractive to me.Using the LTM Adj-Ebitda D/A-E = 2.4 for EVEP--3.25 LINE---2.7BBEP-. Their Enterprise values divided by A-E = 8.2 for EVEP --8.9 for LINE---5.9 for BBEP.BBEP currently does not pay a distribution and is involved in a lawsuit that I believe they will win.Despite the dilution EVEP maintained a DCF ratio of 1.12 vs 1.09 for LINE.The 7.2m units issued (30.5% of the outstanding 23.6m) in the last Q (152m net proceeds)obviously will increase the coverage ratio and the distribution going forward after EVEP has had a chance to utilize the capital.I believe that 3.2m of the 7.2m were issued on 9-30-09 and figured in the 1.12DCF ratio for Q3.All 3 have various advantages in their forward hedges on a comparison basis.LINE is the most conservative with 100% of current production hedged through 2011.EVEP has higher $ hedges fo 50-75% of their production into 2014.BBEP has lower $ hedges but a little more of their production hedged for 2010-2012.I see reasons for owning all 3 based upon their current metrics ,future hedges and general market conditions .The rest of the MKT went down 4-5%. I'm down 1-2% with the distributions on their way even for BBEP in May. GLTA

    • Thanks for the good points.

      A big concern is natural gas prices have basically been selling for $5 mcf this past year. It does not look like the price is going to be outside the $5-6 range for 2010 and perhaps even 2011 unless the economy really rebounds which does not seem likely.

      LINE has two more years of hedges, and I expect the distribution will not hold up after that. As you know EVEP has 12 months more of very effective hedging which LINE does not.

      I have concern that LINE's stock will not hold up if it has to cut the dividend with a cut in the price of gas after the timely hedging runs out.

      With EVEP having one additional year of strong hedging which LINE does not I would expect that EVEP's will be supported above LINE's.

      The big question for everyone is what happens to the dividends in 24 months, exepecially for LINE.

    • If you look at analysts estimates, LINE will continue to post increase in profits in 2010.
      EVEP's profit is expected to fall in 2010.

 
LINE
10.26+0.13(+1.28%)Jan 30 4:00 PMEST

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