Really all you have to notice is/
1 last 1/4 texas stunk as far as oil production
2 Oklahoma was a bummer in production
3 BP hasn't contributed when they bought that property
4 unit price has kept falling and the monthly divie lets shorts stay in the game longer
5 Ellis has dropped the ball in this latest 1/4 in the CC with his stumbling and bumbling with explanations
6 the big one is NO guidance forward [investors don't care for that statement]
I am not a prognosticator; all I do is make observations and draw conclusions which may or may not be correct. Anyone else here could have come to the same determination if they would simply take off their rose-colored glasses.
But, some observations I saw last week did not encourage me to jump back on the Linn bandwagon.
1.) Berry's results were mediocre at best, following along the same lines as Linn: less production in the second quarter than the first; and minimal annual growth (5-10%). Operating margins are running below forecast despite higher oil prices. The good news is at least it appears they plan to stay within their capital expenditures after go way over last year.
The takeaway from that is I don't expect the Berry merger - if it goes through - will be a miracle turnaround for Linn.
2.) No one noticed that Linn has completely ignored the ethane rejection issue in their rest-of-the-year forecast. It's as if all of sudden the problem is going to go away so they don't even include the potential shortfall in their revenues the rest of the year.
This means that what they said will happen, won't, and that DCF will come under even worse pressure than the first half of the year.
3.) Although Linn wasn't very clear about it, Goldman seems to think - and their presentation indicates - that the current distribution will not be increased in the fourth quarter as planned and will likely not increase through 2014 even if they do the Berry deal. Even though a high yield is nice, it can always go higher. And not from a unit price increase. The fact that Linn refused to provide any guidance didn't help. Slow (or no) distribution growth is anathema for institutional and retail investors.
I won't pretend to forecast what the outcome of the SEC inquiry is, or whether or not the Berry deal will go through. I have my opinion, but it's based more on gut feelings than facts.
On occasion one finds a poster that seems to a sense of humility about investing, Thanks for your post. One question, at this point would it be more beneficial if the Berry deal didn't go forward.
Not a Short !
Respectfully, regarding your Point 2 to the effect that Linn Energy "completely ignored the ethane rejection issue in their rest-of-year forecast", this is not supported by facts. Please see the paragraph in the QII earnings release under "Guidance Update": Quote: " Decisions of whether to reject ethane are made monthly based on economics at each processing location in an effort to maximize value. Using current commodity price assumptions, any potential ethane rejection will have a negative impact on production volumes but no impact to revenue."
From the current S-4, LINE has in fact recognized ethane rejection. It appears any number of time. See pg 244 for a typical finance sheet footnote:
"Average daily production volumes in the Green River Basin region reflect the impact of the acquisition from BP in July 2012, partially offset by a reduction caused by ethane rejection in the region. The increase in average daily production volumes in the Permian Basin region primarily reflects development capital spending, partially offset by downtime from third parties’ infrastructure. The
increase in average daily production volumes in the Williston/Powder River Basin region reflects development...."
I am not an accountant but it sounds like the game LINN was playing was to play with the way they were accounting for payments to hedge against a drop in gas prices. It is the GAAP/non-GAAP problem. It was obviously done to greatly improve the books but I don't really undertsnad the depth of it.
It does seem to me like this is the kind of thing that could be settled with the SEC and may not be that bad.