Buy it. Don't sell it.
300 wells X 200,000 BOE in Year 1 = 60 million BOE. X $50 earnings/income per BOE = $3B in earnings.
With $3B in earnings, they can drill another 500 wells in Year 2. Do the math again.
Linn Energy is one of the greatest energy stories of our lifetime. This stock is priced like an MLP, but it should be priced like a small E & P with huge near-term growth potential. I also like Forest Oil, their neighbor in Granite Wash.
Like I said, buy and hold. Done.
Yes, and quite possible we will all outlive the current MLP tax structure. I am aware of the step up in basis provision (although it seems complicated as all the individual MLPs would have to be notified if the K-1s are to be correct). But who knows what will have happened to current tax laws by 30 years from now.
On one of your other points, I'm always amused when people paint it as a disadvantage to reach a zero cost basis on your MLPs. Come on, does anyone really not want to reach a zero cost basis? It means you'd have an ongoing income stream which you have paid nothing for. Is it really so awful to pay LTCG rates on income which has cost you nothing?
". . . standing at the great oil well in the sky, you can leave your MLPs to your heirs."
The potential problem with this strategy is that you may have good reason to bail from one MLP or another but feel held back by the estate advantages. Also it doesn't take that long to arrive at a zero basis, which means no more tax deferral and the additional drag of not wanting to sell and cough up cap gains on the entire sale price of the units. Deferral is great until you need to pay the piper, despite having had some opportunity-money time. Finally, the estate advantage, despite being a resident of codgerdom, may take longer to realize than you planned for. My widower grandfather came to Calif. at age 65 to die of his heart condition. But he lingered at a daughter's house like the man who came to dinner. After a year he moved out and bought a newsstand in downtown L.A. He worked and remarried. The woman died 15 years later. So he remarried again at 85, grousing that the bride was "a wonderful person but such an old woman." That was a hoot. The lady was 75. And he outlived that wife, too, eventually passing away at age 96. I have a picture of him with my three small daughters on the living-room couch. So it's odd compression of time to consider that he was born only fifty years after Thomas Jefferson and John Adams died. He didn't own any MLP's, though.
I just thought of another good reason why MLPs belong in taxable accounts. If you're an old codger like myself or Jack and you find yourself standing at the great oil well in the sky, you can leave your MLPs to your heirs. They'll get a step up in basis and all those distributions will be tax free to them as well as any cap gains up to that point.
Quite true, although last year many of the E&Ps had taxable income (more than the distributions for VNR, but after accounting for IDCs and depletion, about 50%), and in 2008. LINE also had very significant Section 1231 gains in either 2007 or 2008 that were taxable. So while a lot of MLPs produce tax deferred income, some do not. We'll know about 2010 in the coming weeks.
That's exactly my point. MLP distributions are tax deferred by nature so I get the compounding even when held in my taxable account. By having MLPs and trusts in my taxable account and other (non inherently tax deferred) investments in the IRA, I get tax-deferred compounding on all investments in both taxable and tax free accounts.
Yes, a major component of my investment strategy is compounding. Distributions plus added income from selling puts all gets reinvested tax deferred into high yielding MLPs/trusts. Compounding on steroids.
There's disagreement on that. I can find you several "experts" who say they're taxed as LTCG and several who say NQ dividends(ordinary income). Just proves you can't always trust what you read on the net.
Frankly, I wouldn't worry about it with LINE. Maybe EPD though.
The most powerful investment method is compounding, and that is enabled by applying the distributions/dividends acquired in an IRA/K 401 (not reduced by current taxation) to compound.
Unless you buy more units that serve to extend your ability to defer income tax in a regular account; in the IRA/401K it's only a UBTI over $1K that gives rise to current taxation, and of course straight income for units or cash from sales taken from the account as a distribution.