Did anyone take the time to estimate what LINE's GAAP earnings per share might be with the drop in oil prices during the quarter? We all know that EPS doesn't relate to the distributions, but it seems to have an affect on the share price. Mark to market on the hedges should give us a good-looking EPS.
I wish I could answer that with real authority. I believe that allocations are based on the date of events and the period of holding. So it may be that if the asset sale was July 1 and you bought on July 30, you wouldn't be allocated the gain. But I am not sure of that as I have not done the research and this is my recollection of a partnership taxation discussion from 15 years ago. I'll see if I can find more information.
Distributions paid and allocation of income and special allocations may have little to no direct relation to one another.
I'm trying to figure out how much loss I need to realize to offset the expected gain. You are right that in this market, it won't be difficult to find losses. will the capital gain be distributed to holders of record 12/31/08, or distributed on the basis of distributions paid during 2008?
That number could easily be in the $3 per unit range, but I don't have a solid number at the moment. The sale price was about 2x the cost of the assets -- there is probably 1231/1245 gain, depreciation recapture, etc. The $68 million paid to terminate hedges will probably flow through ordinary income and increse the loss there.
Of course, it will also be easy to find something to sell that has a capital loss to offset this, don't you think?
CHK had mark to market losses of $6.5 billion at 6-30-08 and in mid Sept reported that the hedge liability had lost $6 billion -- so they will have at least a $6 billion mark to market gain this qtr.
LINE will probably have $600 - $700 million gain this quarter, perhaps more.
Note that CHK was cutting some production and growth plans due to lower prices. Higher prices are almost always better for producers from a cash flow perspective, even with hedging mark to market losses.
Lower prices aren't 100% bad news for producers. They usually get lower operating expenses, lower extraction taxes, lower royalties, lower gathering (if they use % of value of product contracts). Also, if their hedges accurately reflect the markets in which they sell, the hedge settlements should not only turn positive, but there are no royalties or extraction taxes on hedge settlements. So in some cases a producer does benefit a bit.
Because they marked to market at much higher prices for both oil and gas one would assume that they would report substantial earnings from marking up this qt. Earnings more or less locked inn for next 3-4 years on 98% of production.