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Linn Energy, LLC Message Board

  • wentkerl wentkerl Mar 26, 2014 7:40 PM Flag

    Can Someone Tell Me What I'm Not Understanding?

    I've been avoiding gas/oil stocks because I don't really understand them. But I want to. Beginning to wonder what the hell I was thinking in choosing this one to learn the ropes.

    It seems all the panic has risen over the questionability of whether LINE can make it's distribution payment.

    The 10-K states that, as of 12/31/13, shares outstanding equal 237,544,000 (I'm assuming this includes the Berry issues).

    Consolidated B/S shows 52Mil in cash and 488+Mil in Receivables. I'm not sure what the industry standard for trade terms are in this industry, but is Goldman assuming that nobody is going to pay their bill in March? This, in addition to normal daily revenue activity and available credit in their facilities to cover until they realize the potential of the Basin? property they dubbed, having their own bank?

    Please correct me if I'm wrong, but the March distribution is less than 60Mil? Even if the 10-K doesn't reflect the Berry units, the distribution seems likely, but a lot tighter than I would want it to be. Is that what all the grief is over? It basically comes down to a coin toss for the investor, but if management is being forthright, I'd have to give the edge to management over Goldman and Cramer. In any case, management is playing Russian roulette with cash and I hope the scale back in the future, IMO.

    If I'm way off, tell me also, cause I'd hate to try to look like I know what I'm talking about when I haven't got a clue :-).

    Sentiment: Hold

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    • I own this stock from the low 24's. If you want to make money on the Balken try out Halcon. Good chance to double your money. They are kicking but out in North Dakota. Floyd Wilson is a legend.

    • I believe this is just another item on a long list of items you don't understand. Your best cast scenario is that you are a lazy investor who doesn't want to put in any work. Your worst case scenario is that you are a paid poster. Personally I believe the latter case is true.

    • you really don't want to be comparing cash on hand to the distribution on a stock like this, the key is to monitor the cash flow vs the distribution which right now is unsustainably high. I'm sticking with this for 2 reasons (1) I beleive their stategy will work and they will improve the payout ratio and (2) the stock used to trade at a 7-8% yield so if they came out and announced a 25% dist cut the stock would, at this price, still be yielding 8%. Don't misunderstand, if they announce a cut there would be a immediate drop but then there would be a steady rise back to a 8% yeild - so I believe a dist cut is already priced in and if mgt puts a nice swap deal together and shows the dist is safe (or can go up a bit) then I think we work our way back to an 8% yield the best way, via stock pice appreciation - $35-36 price range

      • 4 Replies to johns.patrick
      • Yeah, cash on hand doesn't mean much when you're running a multi-billion bank line. It doesn't pay to leave piles of cash lying around.

      • I'd be very surprised to see a distribution cut in 2014.

        Clearly it could happen, but seems unlikely, especially given the current "projection" of a 1.0x coverage ratio. While management teams seldom forecast distribution or dividend cuts, it seems strange to project a 1.0x coverage and then follow up with a cut.

        I do think though that it is pretty safe to assume that absent any acquisitions or transactions involving the Wolfberry assets, the distribution will likely be stagnant this year as they consolidate the Berry deal and refocus on lowering the overall company decline rates.

        The current price essentially removes all premium that the LLC structure had, meaning you are buying the production/reserves at private marker NAV.

        Also worth nothing that for the first time in a long time, Linn's hedge book is finally reflective or nearly reflective of prices currently available. They are no longer "living" off their hedges, which means as hedges roll off, production can be hedge again at comparable prices, capturing similar margins. This hasn't always been the case.

        I have no idea how low it will go, but the valuation at this point is making it a relatively low risk.

      • I agree with John.Pat this company has a solid plan.

      • My gut tells me that will be what ultimately happens and I'm okay with that. I was just hoping it would be next month and not this month, and ideally not at all but that's life. Thanks for the feedback johns.patrick.

0.180.00(0.00%)May 23 3:59 PMEDT