Linn just posted the following presentation in conjunction with earnings release.
See slide 7 for gas hedges.
Looks like they locked in lower prices through '17. Previously I had commented about how '16/'17 hedges were lower than current and one of the board posters pretended it didn't matter because it was only quarter or third of total volumes. Now we are 100% according to Linn's release. Looks like '17 is about 18% lower price (i.e. $4.53/$5.47 or the loss of about $1/mcf in margin). Looks like Linn does not believe gas prices will rise materially above $5/mcf. Overall volumes are trending up to accomodate Hugoton/E Texas acquisition as well as GW drilling. Still it is ugly to have to fight price declines with volume increases.
Oil on the other hand is looking solid if not spectacular. Linn appears to have locked in about $90 or higher going out quite a few years.
I do wish however they would show their NGL hedges, which usually only go out 18 months. NGLs can be quite volatile so it is important to try and capture as much margin as possible.
I said Linn's natural gas margins are compressing and the hedges prove it.
You mentionrolling them forward, layering on more hedges as they either drill more wells or acquire existing production. yes, that is 100% true. That has always been the case. That wsa true this year, last year, the year before etc. Everyone knows that if Linn goes out and acquires a parcel of producing properties such as the E Texas and certainly the Hugoton that they are going to layer on more hedges because Linn likes to have close to 100% of existing production hedged going out about 4-5 yrs. If production goes up significantly, they are going to hedge it. With the GW/Hogshooter, I don't think Linn will layer on lumps of hedges as wells are brought online, especially since the wells are showing such high IPs and will mean nice flat line production in 2 or 3 yrs.
Linn has always had the option of layering on more hedges, even when gas was $8/mcf, $7/mcf, $6/mcf etc. The point I have made is that the natural gas margins have compressed, but Linn has survived via conservative balance sheet management, strong coverage, having oil production and also by having the GW which gives clearly superior IRRs than virtually any other basin in the US (based on prevailing strip prices).
Yes, the price will change as will the volumes going forward, but you and I both know that for the weighted average to climb from $4.50ish/mcf to $5.50/mcf will require a large increase in price to bring the average up. Margins are shrinking, but on the flip side, with gas bottoming, they aren't likely to get any worse. As some have mentioned, field costs should be moderating somewhat as there is less gas drilling and the premium for field hands is going down (though some might argue they are simply moving to oily fields). I don't think Linns costs will go up much. As they grow larger, they gain economies of scale which are real and substantial.
Also, not sure why you are mentioning someone following Cabot (COG). I can't imagine why any E&P company would hedge less than 75% of their natural gas and oil production out at least 3 or 4 yrs.I certainly understand companies not hedging 100% to accomodate any supply disruptions that may make it difficult for them to make physical delivery. It is utterly foolish to not lock in at least 75% of production via swaps, puts or costless collars...
I think Linn is very intelligent for hedging so heavily and I think that the hedges coupled with the GW and perhaps the Bakken are why Linn trades at a 7% yield when companies like BreitBurn trade at near 10%.
There is no spin.
You just did your hocus pocus routine and did not address the issue again.
Those hedges do change, your representation of Linn "locking in" was a clear misrepresentation of what they do.
You left out rolling them forward, added organic production hedging, hedging new acquisitions and how much that is, and just portrayed it as if they were stuck somehow until 2017 with todays lower prices.
All incorrect and if you understand how they hedge then you knew that....if you did not know, then you need to understand it.
Again, if you think that I might be incorrect, go ahead and send the entire thread or just your (or my) posts on the issue and hear back from an expert at Linn and post it.
From what I read from you & the COG expert who likes 36% gas hedges....I see nothing exceprt lots of BS.
Nope, wrong again. You'll have to come up with a better hocus pocus answer big boy.
Your answer to everything is that it doesn't matter because the numbers will change going forward. The numbers will only change if they layer on more hedges or if prices rise above the current level of the puts and then that would be on 32% of the now hedged volumes. You'll have to try your spin on someone else.
Glad you are having fun.
You are still wrong.
Below is the reason why explained. The only correction is the slide #18 on the second link should be slide #21.
It is illustrated well and it shows clearly why you are wrong.
Instead of debating about it which you will try to do...send it to anyone at Linn Energy and ask them if I am correct or if you are correct and then post their response on the board.
You will not....because you are wrong and you know it.
Here is the specific place where I explained what you wrote that was incorrect about the hedges which you said was not specific, but it is.
I even posted links to proof with my illustration, using presentation numbers.
You are just too busy jabbering to address what was clearly showing that what you posted was incorrect.
Then you made a few other incorrect points which were essentially mere personal attacks which we kinda make a note of and just ignore because it shows that instead of addressing the incorrect issue...you just changed the subject.
Please let us know what Linn Energy management has to say about your incorrect post....or mine.
No, you are wrong. I never mentioned anything about a fight against the gas glut.
I said Linn's gas hedge prices were declining and the presentation indicates as such. The put component is around 30%, so 70% of their volumes are capped. I'm not saying that the prices they are getting are bad, I think the prices are good. I don't think gas will go much higher than $5/mcf over the next couple of years. Far to many productive basins that become very profitable at $5/mcf. Just look at all of the 10% IRR slides that seem to be so common in E&P company presentations these days.
You guys sure get your panties in a knot when someone says something critical (albeit true) about you beloved Linn.
One should never fall in love with their investments but should rather be objective. I do that with all of my investments.
I own some companies that are doing fantastic (WMB) and some that aren't giving me great returns (KO). I don't get upset if someone posts something critical about either of them.
And for the record, not one of you guys has every answered my comments about dillution of the Granite Wash. You rave about the success of the wells, but when someone points out that your per unit exposure to the GW has been dilluted by 75% over the past 2-3 yrs...it gets silent...which is what I would expect of shills.
All this focus on the lowest possible natural gas prices five or six years from now without addressing production growth let alone production cost. The cash margin on mature natural gas producing assets is locked in and I would think the cost of production is likely to decline from boom production levels.
I really do not understand why the poster you are responding to hangs around and invests so much time in a business model he clearly does not like. Strange thing.
Wrong again. At least from now out through 2017, Linn fought and won-- they are not fighting a losing battle against a gas glut, as you keep posting.
And six years out is a fairly long stretch for NG pricing to go higher. At least until 2018, Linn is solidly profitable. Now, whast's your real problem? Linn does not do what you tell them to do? Gosh.