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Linn Energy, LLC Message Board

  • richardleeds richardleeds Jun 30, 2014 12:26 PM Flag

    Wells Fargo energy analyst implies Linn overpaid

    The energy analyst said they expected Devon to receive $1.2-1.4 billion for the production/acreage.
    Linn paid almost double.
    Also Linn has to borrow the funds and pay interest on the borrowed money until they close
    a transaction to sell around $2.5 billion in leases/production assets to cover this purchase.

    It looks to me like Devon got the better end of this deal.

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    • Pundits, 'analysts', etc.... You think they know better how to manage LINN than the company does? Then go invest in them. LINN knows their business far better, and understands real consequences. Investment in LINN works.

    • The note takeway
      Key Takeaways. On 6/30/14, LINE announced the acquisition of oil and gas
      reserves from Devon Energy for approximately $2.3B. The partnership has
      secured $2.3B of interim financing from lenders to finance the transaction, but
      ultimately intends to fund the acquisition via the sale of its Granite Wash assets
      and other non-core acreage. Strategically, we view the announcement as a
      positive for LINE. The properties to be acquired from DVN are geographically
      diverse (5 operating regions) and have a manageable average annual decline rate
      of 14%. In contrast, the decline rate of LINE’s capital intensive Granite Wash
      properties is 40%. Hence, this acquisition and subsequent Granite Wash sale
      could reduce LINE’s overall portfolio decline rate to less than 20% from 25%
      currently. While recently announced transactions should help de-risk LINE’s
      overall business model and generate modest accretion, we maintain our Market
      Perform ratings as execution risk on pending transactions (e.g. sale of remaining
      Permian position, Granite Wash) and leverage remain high.

      Sentiment: Buy

    • Just talked to my Wells broker this am and he thought this would be good as there was no need for additional debt. Their analyst hasn't commented yet. So Richard go sell your fish elsewhere. Cheers

      Sentiment: Buy

      • 1 Reply to shamanhbc
      • Shaman, you said you talked to your broker at Wells Fargo and told you his analyst had not commented on the transaction. I suggest you read the following from Barrons today and the author's quotation from Wells Fargo's David Tameron.

        Before you tell me to go sell fish, whose the one here that smells. One of us is very accurate, you, your broker or me? I think Levisohn and Tameron at Barron and Well's Fargo would say its not me.

        Suggest you read the article at Yahoo Finance, Linn Energy from Barrons

        "Linn Energy Buys Devon Assets: Assessing the Deal"

        By Ben Levisohn

        Devon Energy (DVN) agreed to sell non-essential U.S. assets to Linn Energy (LINE) for $2.3 billion today, helping it further its transition from natural gas to oil.

        Bloomberg

        Wells Fargo’s David Tameron thinks Devon’s got a good price from Linn Energy:

        …headline number ahead of expectations; the transaction went off at ~5.1x 2013 EBITDA for majority gas assets (275 MMcf/d, ~1.2 Tcfe of reserves). Not surprised the deal beat our $1.1B estimate which we viewed as conservative, but based on recent conversations with investors, proceeds also above high-end of expectation range (we think Street was modeling $1.2$ 1.4B). The divestment helps further delever Devon Energy’s balance sheet; management expects to reduce net debt by ~$4B by year-end. Overall, we view the transaction very favorably as it should be wrapped up sooner (we modeled Q4) and at a higher price than expected. As a reminder, we recently upgraded shares to Outperform and we continue to recommend the name.

        Tameron updates his note:

        We received a few questions following our thoughts on DVN’s transaction. Primary question was on the EBITDA multiple; to clear up any confusion, the 5.1x we referenced below was based on aftertax proceeds. Using the $2.3B pretax figure, which is more appropriate, results in a 6.6x multiple (based on 2013 EBITDA provided by DVN).

    • burn shorty burn

      Sentiment: Strong Buy

    • I haven't seen the Wells Fargo report yet, but will look at it after lunch.

      I'm not really sure we have all of the information yet. We have the purchase price to Devon and an EBITDA number from '13 from Devon that we can surmise is reflective of what it would be in '14, but not much more.

      Perhaps Linn will put out a better supplemental slide.

      Of course, the real analysis won't be complete until after Linn has divested the GW/Cleveland Sands packages. This will be, assuming they can complete the second transaction in a timely manner, a 1031 exchange. So, once the divestiture is completed, we can see what was given up and what was received in terms of total production, production mix, decline rate and accretion in terms of DCF (the ultimate metric above and beyond mcfe or boe, above ebitda, etc). Until such time, the market will only be dealing with snippets of data.

    • outthink@att.net outthink Jun 30, 2014 12:57 PM Flag

      Opinions are like #$%$ - everybody has one. For LINE/LNCO shareholders, what matters is the stock price and the stock price of both are up upon the news release. Go troll somewhere else.

      • 1 Reply to outthink
      • Say what you want but Linn Energy has around $10 billion in debt.
        They use all cash flow for capex and distributions. How will that
        debt be paid off when all the debt number does is grow year after
        year and cash flow does not increase to cover anything but the
        distribution and capex. What is a business that demonstrates no
        capability to pay down debt. Try doing what Linn is doing in your own
        financial affairs.

    • And they over paid for Berry, according to some analysts whats new, Mr. Market will ultimately decide!

    • Market seems to disagree. DVN up 6 cents or .08%. LINE up 53 cents or 1.66%. LNCO up 77 cents or 2.52%.

    • Not what the market is saying. So clearly the consensus did not match this analyst's opinion.

      What is more interesting now is how much the shale assets are worth. Exporting light shale oils which are currently heavily discounted at world prices is no small change.

      The question really is how much of any dilutive equity LINE might have to issue as part of this deal. It could well be zero. Also the move from $28 to $32 is no small change in the implied cost of equity

 
LINE
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