Distribution Coverage Including Cost of Puts: 1q vs 3years
Linn has an explanation for cost of puts and Barron's disagrees. I am not commenting on that. What I would like to comment is on the distribution coverage including the cost of puts 1q vs the past three years-
I used to be a multi-year subscriber of Barron's. The long before this Linn issue I cancelled my subscription as I concluded foul play on several articles Barron's put out. Example Barron's would have bullish story on a stock and the stock would appreciate immediately prior to the story in Barron's. It seemed folks at Barron's shared the info with fund managers prior to going public with the story.
Now I see Andrew Barry is going way out of his way to put just one quarter's performance out of proportion. It seems that for him and people supporting him behind the scene are desperate to break the merger with BRY.
1qY13 Andrew says the distribution coverage is only 63% if we include $43M of put cost. He should know better that 1q performance doesn't determine the long term performance. He is definitely manipulating the minds of people for his own benefit and benefit to his manipulators behind the scene.
Following his own citation (page 257 footnote of revised filing)-
Distribution coverage including put cost for the whole year 2012 was 91.2%
Distribution coverage including pit cost for the whole year 2011 was 106.4%
Distribution coverage including put cost for the whole year 2010 was 99.5%
The company expects improved quarter going forward. So, why is Andrew so desperate to blow one quarter's performance out of proportion? Smells foul play from Barron's.
Unless a mistake (unintentionally or not) was made in the Q1 10-Q and/or the latest proxy, in comparing the two there isn't anywhere near the $43mm difference purported in the Barron's article. Footnote #3 on p. 257 of the proxy says "The premiums paid for put options that settled during the three months ended March 31, 2013" doesn't seem to mean that the indicated premiums were actually "paid" during Q1. In other words, they could have e.g. paid the premiums during FY2012 for puts that were settled during Q1.
Correct analysis. That table calculates distributable cash flow. It adjust for the MTM of derivative value changes that are non-cash, and describes in the footnote that the put expense that is a part of this item was the $43MM. As you note, that is not the same as saying the put expense in 1Q/13 was $43MM, which is at the heart of the Barron's assertion. If the puts are capitalized, then their cash expense would appear under capital in the period when the asset was purchased. So all of the cash flows are properly reported - just with a significant time difference. Nothing wrong with LINN accounting. A lot is wrong with Barrons reporting, toadies they seem to be to Hedge-Eye and others with a stake in pushing LINN down. One wonders if this is a last gasp before the BRY shareholder vote. I cannot explain why LNCO's price is so far from LINN's, but perhaps it is the arbitrage with BRY that creates this space.
You are right my friend. The indicated premium might have been paid in one day or one quarter or whatever period per hedging strategy. That is why one needs to look at coverage not just for 1 quarter but for longer periods - at least a year. This is why I think there is gross manipulation on Andrew's/Barron's part. Barron's magazine subscription don't bring in enough money so they must have decided to collude with short sellers to indirectly extract money from pop and mom investors or retired folks.