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Linn Energy, LLC (LINE) Message Board

  • mh_scooby mh_scooby Dec 8, 2010 4:26 PM Flag

    Down 1.42 in after hours

    More Dilution

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    • jackhiller Dec 9, 2010 9:46 AM Flag

      Your math on the gas hedging is only half right and misleading. To compensate for the reduced hedge price they ramped up production to create approx the same level of profit; although the hedge price is lower, their cost for added production is cheap.

      Growth on top of the hedge program is coming from the GW as you correctly point out.

      And growth is also in the works from accretive acqisitions.

    • Linn mgmt is great. I wanted to buy all day but it kept going up. Went into the after market and got what I believe is a bargain - 35.79.Time will tell if I am right.

    • jackhiller Dec 8, 2010 4:37 PM Flag

      Dilution means that after a sale of shares (units) the equity of prior existing holders is lowered and damaged.

      So, let's say that the DCF ratio was running at 1.2, then a dilution might take it down, by way of example to 1.1. That's bad, so why might a company do that? Typically, a sale of equity increases company size, so its execs feel justified in raising their ow salaries and hiring cronies.

      Linn's sale of equity to support acquisitions runs counter to the above dilution description. Linn's acquisitions, supported by raising new equity, have raised the DCF ratio immediately, and will additional drilling have raised it even more (e.g., the GW and Wolfberry).

      There is a track record showing that those who bought the new units and those who held the old units have done well with distributions paid and increased and unit price appreciation.

      Only dumb bunnies and shorts would be spouting "dilution," when Linn raises new equity.

      • 3 Replies to jackhiller
      • Jack,

        The press release said they would use funds to pay down debt.

        I was surprised by this statement since paying down debt and issuing more shares would be dilution to existing shareholders.

        Perhaps that is why the shares are dropping in after hours.

        Over the years the share issuance have resulted in acquisitions. This time it does not sound like that. Still a surprise.

        On a positive note, it would not be all negative to reduce the current debt by 10% if that happens. Still, the shares to me would cause 5% dilution. About the price drop in the after hours today. Still the correlation should be to the price that the shares are being offered for and that was not disclosed.

        Also, CHK has indicated that they are going to drill more NGL liquids as everyone is, including Linn. At some point this keeps driving down the price of liquids which is basically a local market.

      • Agreed, however that applies to MLPs in general, not just LINE. As MLPs distribute most of their cash flow to unitholders, in order to fund accretive growth they must either add debt or issue units. It's not a bad thing. It is what allows them to increase distributions in future. Without these offerings there would be no growth and no distribution increases. Of course, it does typically result in a price drop of up to 5% that may persist anywhere from a few days up to a month or so. So if you are looking for an entry point or to add to your position, you may get a better price on the day following a secondary announcement.

      • I guess all those selling in the after hours are dumb bunnies.

    • Have to admit Linn mgmt has great timing, at all time highs when it announces the secondary.

      short now and buy back after the secondary pricing is announced might work for some short term trading

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