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Linn Energy, LLC (LINE) Message Board

  • rlp2451 rlp2451 May 10, 2013 8:35 AM Flag

    Hedgeye Update - Response to Cramer/Ellis Interview

    Ellis: “We’ve been very clear and transparent as it relates to our non-GAAP measures that we use to measure the performance of our business. And in our most recent 8-K’s we’ve given total transparency in terms of how those measures are calculated.”

    Hedgeye: We disagree. How LINN excludes the cash cost of put options from “distributable cash flow” by amortizing them through the unrealized loss on commodity derivatives line has neither been adequately explained nor justified (it's complex and most LINE investors don't understand it). Further, “maintenance capex” is still very much a mystery; we are not able to calculate or estimate this number on our own. In fact, LINN’s IR team has told us that it’s not possible with publicly available information. This is hardly transparent.

    Cramer: “[Kevin Kaiser] says that ‘LINN can’t keep production flat despite $260MM of capital expenditures, yet the amount of capital spending that is deducted from their definition of distributable cash flow was only $110MM.’ He’s saying that your free cash flow was actually negative $40MM…”

    Ellis: “Jim, what you have to understand in our business is that one quarter does not make a company. One quarter is not the appropriate measure for determining whether or not your maintaining your asset or not [sic]. You have to look at the body of the work over the course of a full year; so I think he’s taking a pretty short view of our business.”

    Hedgeye: This is a weak argument that is not supported by the data. First off, LINN is a pretty standard E&P company – spud-to-sales times are ~30 - 60 days. There are no significant upfront costs to be followed by a large increase in production months or years later. Second, let’s do what Mr. Ellis suggests and look at the Company's performance over a longer duration. LINN says that maintenance capex should be considered on an annual basis, but let’s look at the last two quarters plus the guidance for 2Q13; this is an instructive exercise

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    • Just another short. Better over before the big squeeze...

    • robin0635@att.net robin0635 May 10, 2013 3:06 PM Flag

      rlp: Just a curious question... If you dislike this stock so much and continually profess the statements of hedgeye and Jacobson, what makes you think you are going to change the opinions of those who disagree with you? Those who like LINE and LNCO will stay, while those against may easily vote their opinion by selling the stock... My position is clear,. and by now with your posts, your position is patently obvious... So what is it that you seek to gain by your "Don Quieoti" (sic) quest? The negatives as well as the positives have been professed ad nossium, yet you still continue... Do you really believe you are going to change opinions now one way or the other? OR - Are you just trying to prove a point, that sometime in the distant future you, may have been right? Just curious...

      Sentiment: Buy

    • Pretty hilarious update from hedgeye: "On March 21st we were willing to give the shares a fair value of around $15. We now think it may be as low #$%$"
      I wonder who will take them seriously after statements like this, LOL...

      Sentiment: Strong Buy

    • Hedgeye: We disagree. How LINN excludes the cash cost of put options from “distributable cash flow” by amortizing them through the unrealized loss on commodity derivatives line has neither been adequately explained nor justified (it's complex and most LINE investors don't understand it).

      Not complex at all. Nor does the GAAP treatment impact forward DCF in any manner. Management has moved to all swaps. So there is no reason for Hedge eye to harp on this. But of course they do for some reason.

      Puts ranged from 46% next year to 36% five years out. If the intent was to deceive and artificially increase DFC why use any swaps?

      Now LINEs maintain capital requirements are modeled by hedgeeye to greatly exceed industry standards? Because their mature well understood assets are trash? Would you like to take another opportunity to explain this nonsense rlp'd?

      Of course you don't. You do not understand any of it.

    • because the Company did not close any material acquisitions over these three quarters, so we have three straight quarters of organic numbers. Production averaged 800 MMcfe/d in 4Q12, 796 MMcfe/d in 1Q13, and management has guided 2Q13 production to 780 – 820 MMcfe/d. After adjusting the 2Q13 guidance for the Panther divestiture (expected to close on 5/31/13), the midpoint of the 2Q13 guidance is 806 MMcfe/d (by our estimates). So for three consecutive quarters LINN will have essentially no production growth, and total capex will exceed maintenance capex by $491MM. "Distributable cash flow” over these three quarters equals $497MM. In our view, if maintenance capex was anywhere near what it is really costing LINN to maintain production, there would be no distributable cash flow (see table below).

      • 1 Reply to rlp2451
      • Yes "in their view"
        Hedgeye's view ;
        -don't count the benefit of hedges despite the fact that LINE has correctly hedged the negative effects of lower commodity prices
        -Do count put options purchased to hedge future output before the benefit is realized

        In short Hedgeye's view is absurd but you are supposed to trust their biased no account view over managements audited GAAP accounted, SEC filed statements enforced under sarbanes oxley!

        Hedgeye is a big-time loser and obvious liar -don't follow them.

 
LINE
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