The only two good things about the deal are (1) Linn gets$2.3 billion and cuts annual interest about $138 million at 6%, and (2) Linn can cut back on maintenance cap ex that was being sucked up by high decline rates. I see nothing accretive about selling 195MMcfe/d and 4.6MBoe/d production (and revenue), unless all the profit lost is made up by reduce cap ex and lower interest payments from debt reduction. I guess it's possible, but will need to do some ciphers to figure it out.
Press release says it will be a 1031 like kind exchange...so no taxes to be paid.
Thanks. Appreciate a calm, sane voice.
Being very, very long LINE (LNCO) is associated with a lot of anxiety. It's like the game of rugby...takes leather balls to play the game.
According to Telechart, LNCO's 200-day Moving Average is $29.63 and LINE's is $30.61. Not sure how you got your #'s?
I thing your 200-day moving average numbers are in error. I get $29.63 for LNCO and $30.65 for LINE as 200-day moving averages. Source: Telechart.
Pull up a 5-day Yahoo chart to compare these four items. (Easy to do. Pull up 5-day chart of LINE and compare with the others. Just leave a space between them in the compare window). You'll see that they are all following very closely. The E&P companies are being driven by oil prices (USO ETF tracks WTI). So the key question is where is oil headed. It's nice to think it's bottoming out, but I fear it's on its way to the mid- to low- $80's. Theoretically, Linn's oil hedges (about $92) should protect it's oil revenues if production targets are hit or exceeded. But the market doesn't seem to give a hoot about "theoretically".
That Linn has only about half its oil production hedged in 2015 should be worrisome if one thinks oil will stay below $90 for the next year of so....
For the last year of so, I've just had the nagging feeling that Linn was and remains behind the curve and is trying to play catch-up. Strategically, it seems to be making good moves, but they sure are not reflected in the market price. Lately, it's pretty clear that Linn strategy is being trumped by the plummeting oil prices. So I guess it all gets down to oil prices now. Rapid decline rates have pretty much been dealt with. Debt is being pulled down a little. Production guidance is okay -- not great, but okay.
One might have argued that the $2.3 billion could have been used to buy back units (costing $2.90 each or over 10% right now) rather than pay down debt (probably costing about 6%), but that wouldn't have helped debt-equity ratio.
Q-3 earnings report might show some rays of sunshine.
The metaphor about the deck chairs and the Titanic isn't quite as you portray. The idea of rearranging the deck chairs on the Titanic is to convey the notion that those who are rearranging the deck chairs are oblivious of the severe peril at hand. Rearranging the chairs obviously does nothing to alter the weight.
A more apt analogy might be that of throwing out the parachutes and dumping fuel to keep the plane aloft.
In any case, congrats on the sale at $31. You avoided a significant 7.7% loss.
I believe much of the recent performance has little to do with Linn's strategy and much more to do with the incredibly strong dollar and plummeting oil prices. Check the past 5 day of USO vs LINE and you'll see a near perfect correlation.
Allso, good luck. Appreciate your contributions to the board....Might be looking like a good time to get back into LINE..especially if you think that Q-3 might be above expectations....Also, in spite of general doubts, I suspect Linn would very much like to chalk up a distribution increase yet this calendar year.
Pull up a Yahoo Finance chart of LINE and look at one-month, three-month, and six-month time periods. Overlay (compare) USO- an ETF that tracks WTI. Basically, LINE has been closely tracking WTI or USO. The machines that do the bulk of trading in E&P companies through mutual funds or ETF's, don't know and don't care that LINE has its oil and gas hedged to withstand the vicissitudes of oil and gas price volatility. I suspect that the machines are programmed to dump E&P and all related companies when oil goes down and do the reverse when oil goes up. And when there are sales of the ETF shares, the ETSs immediately sell across their portfolio without regards to the quality of what is being sold.
Now, I may be delusional, certainly a possibility, but looking at LINE's long-term record, it's never missed a distribution payment, increased the distribution almost annually over time, and has restructured its oil and gas assets to ensure a more stable, predictable, and more gradual decline rate in order to secure the distribution as well as the future of the company itself. Oil prices will get back to the long-term average ($95-$97 or so) when Saudia Arabia realizes it's hurting no one but itself by pumping its precious oil assets at a lower prices than it could or should for maximum income; when the dollar quits strengthening (which it needs to do before it ruins our domestic energy business and kills our foreign trade, and when global GDP (including China) gets back to some modest rate of growth. We might also see some production pull-back from US E&P companies as they prefer to hold cheaper oil in the ground for future production at better prices. That alone will casue prices to move up.
In the meantime, fool that I am, I'm counting on a nice distribution on quite a few shares.
Keep telling yourself, "LNCO is worth $28.37"...LINE's closing price today...and 4.5% above LNCO's close. After all, the only thing LNCO owns is, share for share, units of LINE.
So, Norris, what do you make of the recent plunge in oil and the far greater plunge in LINE? Long-term, what do you see at the 12 month outlook for each?
Appreciate your seasoned, reasoned views.
If bband has over $5 million in LINE and LNCO, I'll have some of whatever he's drinking. Not only is he wealthy, but must have kahunas made of some strange alloy...kryptonite??
I tend to agree with your approach. Know what you own. Do your due diligence and risk assessment. That's what investors do. Traders don't need to know any of this. They just watch the price movements and try to get in and out at good times.
I own (a lot) of LNCO for retirement income. This recent plunge cost me a bundle on paper, but the distribution seems secure...We'll know more after 3Q conference call.
Thanks for putting together your model and sharing it with the board.
Great move. Nerves of steel. Looks like you could have flipped for $20,000 now...But what the heck. Don't beat yourself up. Very nice gain.
You know, I have often thought that thegreatone was so full of himself and that we was pretty much a very shallow thinker. The current comments he's offerd change my mind a bit. A key point is that virtually all of the verbiage put out to feed the media, or put out by the media relating to the stock market and individual stocks, stems from a point of view of those who put it out and it is self serving in one respect of another, This makes it very hard to find real depth, accuracy, relevance, truthfulness, and objectivity. So thegreatone shields himself form the forth of misinformation and does his own assessment and forms his own opinions. Good for him. A valuable, very valuable, discipline...deserving of more respect.
My view is that the horrible crisis in the Middle East, the mess in Russia-Ukraine, weakness and lack of fiscal-economic discipline in the Eurozone, the energy boom in the US (now producing more than we import---first time in decades), and Saudia Arabia's "market share protection" agenda (or whatever it is) have thrown OPEC and the global oil market into disarray, On top of that, the US producers cannot form a US-OPEC type cartel to control prices (a tad illegal). This scares the heck out of me as it relates to global production and prices. On the other hand, every producing country (except the US? and every producing company would like to see oil at $95+...to serve oil-dependent country income needs and to serve corporate profitability and viability. Unless SA cuts production and other OPEC members sort of fall into line, it seems that oil might for sub-$80 or sub-$70 and that may force a curtailment in production. History would suggest that oil bill recover to the mid $90s in 3-6 months...but maybe, just maybe, this time it's really different....I hope not.
Why? What made you stick with it? What's been your reasoning? And why not get out now?
Question I'm asking myself...and I don't have good answers...other than a belief that Linn is different and that it will weather the storm just fine and that the distribution is very safe.
So...let's talk about this...
Add USO to the chart. When oil turns around, the others will follow it back up. If only Saudia Arabia would get off its devastating market share campaign and get together with OPEC to set prices where (1) oil producing countries can regain solvency, (2) oil producing companies can return to decent profitability, (3) Russia will not be compelled to retaliate because of low oil prices.
I tried to write a little about this article and the post didn't make it through. Just take a look at it. In a nutshell, it claims that Linn Energy is seriously exposed to oil price drop then later says it's well hedged. Go figure.