Derivative gains are 40% of Linn's reported revenue in 2013
I wanted to look at how Linn got its revenues for this last quarter, q2 2013, compared to q1 2013. Q2 2013 revenues are reported next to 2012 q2, but you can skip over one column to compare them to q1 2013.
The figures below show the difference in revenues that the acquisitions have made -- but in 2013 the added revenue from the acquisitions has been much smaller than the 40% contribution to total reported revenues from derivatives. In q2 oil, gas & NGL sales rose by $141 million from 2012 q2, whereas derivatives gains were in this quarter were $326.7 million. Notice also that without derivatives, net income in both 2013 quarters would have been negative.
On the bright side, in q2 2013 oil/ngas/NGLs sales increased $25.5 M from q1 2013.
But q2's production of 780 MMcfe/d was down from 796 MMcfe/d in q1 2013.
There numbers are scary to analysts trying to model future quarters, and feed price volatility.
...Three Months Ended.............. Three Months Ended
...June 30, 2013....2012...............March 30, 2013....2012
(in thousands, except per unit amounts)
Oil, natural gas and natural gas liquids sales
$ 488,207........$ 347,227............$ 462,732........$ 348,895
Gains on oil and natural gas derivatives
326,733........ 439,647..............(108,370)........ 1,290
780 MMcfe/d in the 2nd quarter of 2013
796 MMcfe/d in the 1st quarter of 2013
800 MMcfe/d in the 4th quarter of 2012
782 MMcfe/d in the 3rd quarter of 2012
471 MMcfe/d for the first quarter 2012
(this is before the $2 B in acquisitions]
If you ask me, 40% of your reported revenues coming from hedging makes the cost of the derivatives a legitimate capital expense! But you can see why these numbers make analysts working on their models crazy. I hope Linn revisits their decision not to use puts. They had to do this to keep the path to the BRY acquisition open, but puts have been a huge part of their revenue.