RBC in it's bullish 11-30-12 report notes that including NGL's, 74-80% of total production is hedged for 2013 through 2015. 16% of Q3 2011 sales were NGL's at 42$ Bbl- while 21% of sales were NGL's in Q3 2012 at 33$ a bbl.Esimates for NGL's % of production going forward run around 25% of production and maybe by my guess 20-22% of sales.While it is possible that many other outlets for NGL's are in the pipeline ,Line may have a problem in this area going forward. RBC estimates dist of 3.044 and Cov ratio of 1.28 exiting 2013.I'll hold.
The NGL issue will resolve itself, however, it may take several years...in the same way that the natural gas problem will resolve itself.
Quite a few more crackers coming online over the next 5 yrs that will consume plenty of ethane. We also are seeing record propane exports.
In 4 or 5 yrs, we'll be seeing record LNG exports. I do believe that NGLs will continue to be a issue that Linn will have to deal with..but only for a few more years. In the interim, it may mean less aggressive distribution increases and higher coverage ratios to account for volatile price swings.
"RBC estimates dist of 3.044 and Cov ratio of 1.28 exiting 2013."
With a 5% dist. increase factored in to a 1.28 coverage ratio, that's pretty optimistic, but I'll be tickled if RBC is correct. However, Linn will have to negotiate a bit of an obstacle course to pull it off, and only one of the potential obstacles is the price of NGLs.