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Linn Energy, LLC Message Board

  • rrb1981 rrb1981 Jan 6, 2013 7:31 PM Flag

    2013 Obstacles

    Since the (2) board dictators want to play games...I thought I would go ahead and throw out some info already identified by several analysts as headwinds that Linn faces in 2013.

    One is, as norris has already brought up several times in the past few weeks...NGL pricing. NGL pricing is bad right now..both propane and ethane. Long term their are fixes on the way via expansions of propane export terminals by Enterprise and Targa and on the ethane side, quite a few crackers coming online but will likely be mid to late '14 before we see much pick up in demand.

    So, in the interim, Linn faces headwinds on NGL pricing and if I remember correctly 18-20% of Linns production is NGLs. No doubt a good bit of ethane is simply be rejected back into the gas stream...but this was a constituent that was getting premium pricing and now isn't.

    The next major headwind Linn faces is a very high (nearly 4.0x) debt to ebitda ratio. Linn will need to issue at least $1 billion and likely $1.5 billion in equity to get this back down to a more conservative 3.0x.

    The final headwind that I will discuss is Linn's aggressive drilling (primarily in the Granite Wash) has led to a company wide average decline rate that is pushing near 15%. I don't necessarily view this as a real issue because the returns in the GW are stellar and if you can get payout in 6-12 months...then it really isn't an issue so long as they are basing DCF on base production and not flush IP rates. In fact, one might argue without the $5.7 billion in acquisitions made over the past 3 yrs...the overall average decline rate would likely be 30-50%. Of course, these correct themselves within a year or two once they get into the flat part of the curve.

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