On the surface, Linn's swapping production of 4.7 MBoe/d for 3.4 MBoe/d and claiming it's accretive to cash flow after distribution defies logic. I suppose the gain is in reduced maintenance Cap Ex???.
I believe Linn is almost fully hedged on oil for the balance of 2014. Production guidance is 72,520-75,480 Bbs/d for Q3 and 72,740-75,710 Bbs/d for Q4. Hedges (puts, swaps, collars) cover about 70,000 Bbs/d according the Linn's Supplement to Q2 financial report.
If my understanding of Linn hedges is correct, just as hedges protect on the downside, they limit upside...at least with swaps. The puts (about half the NG hedge positions) will allow Linn to enjoy some NG upside above about $5.12 as I recall.
It looks like Linn is hedged on oil the balance of 2014 at $92.46 for up to about 70,000 barrels/day and on Nat Gas at $5.14 this year and $5.12 for 2015.
These hedges should help protect oil and gas revenues this quarter and for the balance of the year if it hits or exceeds its production volumes. NGL's are not hedged so there's clear exposure in this area.
I'm assuming that Linn will make it through the third quarter (only a couple of weeks to go) and the fourth quarter in good shape because of the hedges.
Stronger dollar, falling oil demand, softening oil prices, rising interest rates all pose serious headwinds.
Appreciate comments and insights from the more knowledgeable contributors.
Correct me if I'm wrong, but 13 million new shares on top of the 71.74 million outstanding is HUGE dilution. What am I missing? This adds about 18% more unit to 84.74 million. Quick math suggests a price drop of about 15% from the recent $23.40 range to $19.81. Can this be right??
ronharv -- Enjoyed the post, especially the remarks about wife's comments. Reminded my of one of my favorite lines..."I made a killing in the stock market last week...Unfortunately, it was a suicide."
What was I saying the other day about financial, analytic, journalistic, and reportorial integrity going out the window? The term "ploy" could just as easily have been "organizational strategy" or "restructuring strategy" or something like that. Slimy journalism gets away with the most subtle but dangerous spinning or stories to serve destructive agendas. Perhaps it's always been thus, but it's nevertheless sickening.
From H-eye website:
In light of what we know about their inform attacks on MLPs, their idiotic self-serving tweets, their vilification of those with contrary views, etc., the following blurb will make you puke:
"Hedgeye is a bold, trusted, no-excuses provider of actionable investment research and a premier online financial media company. Our all-star research team is unafraid of rocking the boat and is committed to delivering the highest caliber investment ideas through rigorous quantitative, bottom-up and macro analysis with an emphasis on timing.
Hedgeye TV is online financial media for smart investors where we showcase our analysts' leading market and economic insights and ideas. We are committed to unwavering transparency, accountability and trust."
As I understand, Hedgeye does not take positions on stocks. They simply write a ton of twits (to arouse, inflame, excite, toot their horn, pump theire stuff, inflate their egos, or whatever) and issue "reports" that set up the rationales for short positions and sell their reports/newsletters/daily e-mails to subscribers who pay varying sums for subscriptions. To the extent that subscribers need information to support decisions and to the extend they're getting it from Hedgeye, seems sort of like the blind leading the blind. I'm sure Hedgeye gets it right from time to time, but as a close observer of the stuff they pulled on Linn Energy last year, I have very little respect for their integrity or the quality of their research.
Unfortunately, journalistic, reportorial, and financial analytical quality and integrity seem to be lost in much of the stuff that now sails around the internet disguised as financial information and advice.
I'll need to think about this and it's implications for LINE/LNCO for a bit. While thinking on it, we know that this certainly will give the Kinder and El Paso shares/units a boost tomorrow:
"Shareholders in three separately listed companies – Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners – will be handed a mix of cash and Kinder Morgan shares for their stakes, at premiums to Friday’s closing share prices of between 12 per cent and 16.5 per cent."
And the straightforward commitments to future dividends and growth amazed me. Big Kinder Kahunas:
“... adding that the combined group would be able to raise dividends, cut its cost of capital and use its shares as an acquisition currency. He promised to raise Kinder Morgan’s dividend by 16 per cent next year and by 10 per cent per annum for the rest of the decade."
I have a good load of LNCO (several thousand shares-- swapped LNE for LNCO to pick up about 3-4% more income a while back). The dividends are great, but I, too, chafe under the bizarre daily ups and downs in share/unit price. I don't know what's going on, but can easily visualize some trading floors pushing and pulling on the price to generate outsized annual returns. And who knows what all of the high-speed programmed trading does to stocks with modest market caps. I fully expected that we'd get a boost in distribution to $3.08-$3.15 early this year, but now I don't see this for several more months. It's okay as it signals that Linn isn't going to stretch to increase the distribution, making it more secure. Security is good.
I also have a few Jan 15 and Jan 16 calls that are under water, but believe they'll be okay in due course.
I regret that this post doesn't offer any helpful, investable facts, insights, or advice. Mainly just sharing some personal perspectives. One should discount this sort of thing 100% and base your decisions on good facts and analysis. While misery might love company, it'll sure get you in trouble in the stock market.
Best of luck.
Instead of struggling to "wish" LINE up to the $34-35 range and sweating every ?&^%$# cent of the way and every stupid junk article, we'd all have been a lot better off loading up on Facebook back in the $20's.
After his last bashing of LINE about "financial issues", I sent this e-mail....Not that he ever read it, but I'd like to think that the sentiment in it was conveyed by enough others that maybe, just maybe, he or Stephany Link, looked a little more deeply into LINE.
My e-mail to Mr. Cramer:
In your quest to know a little something about so many thousands of stocks, you have become superficial. Any in-depth examination of Linn Energy would reveal that their accounting is rock solid and that an "Informal SEC inquiry" in mid-2013 revealed absolutely nothing out of the ordinary and resulted only is a slightly and insignificantly different way of reporting "Cash available to distribution". Not one question has ever been raised by any qualified party about the integrity of Linn's accounting.
I'm afraid you've managed to sacrifice financial acuity for entertainment and glib answers.
tgo-I've heard enough of your babel...
Did you ever serve in the military? Did you ever have responsibility for the lives of the men in your platoon or your company? Did you ever see a wounded soldier brought into surgery? Did you ever serve your country and your fellow Americans because you were asked to do so? Did you ever volunteer to serve your country? Did you ever salute the American flag and get tears in your eyes because of everything it represents? Did you ever visit the Viet Nam Memorial in Washington, D.C and cry out of respect because of all the sacrifices that were made by those brave men and women? Did you ever run a business and feel responsible for each and every worker you employed? Did you ever run a business and have to cope with endless governmental red tape an endless policies constraining your business and initiatives to create better products and services for more people at better prices at every turn? Did you ever see your mom and dad go off to work in a factory day after day to make enough money to send you the college so you could have a better life?
The conservatives you so readily malign only want to preserve and restore what is so great about this country and the Constitution and principles upon which it is founded. Most of the Conservatives you malign have served their country in the military or in other important roles. Many are trying to create and manage businesses to make better products and services for more people at better prices.
Unfortunately, you sound like the product of a liberal education that literally teaches our youth to despise capitalism and the people who work hard to make it work well. Shame on you and on the culture that made you what you are.
Well, here's some good news. The way I see it, LNCO is really worth $32.14 -- that's the unit price of LINE and LNCO simply owns one unit of LINE for each share of LNCO. In addition, it is likely that LINE is a bit undervalued. So I tend to watch LINE more than LNCO. Yes, I know about the tax effects on dividends vs distributions, but long term, one is going to pay taxes on dividends or on gains from an adjusted basis of the partnership units so I sort of net all of that stuff out.
Oh, and I don't have a clue what today's sell off was all about. Profit taking, nat gas prices, shorts playing games, robotic trading. No news whatsoever.
Already have a pretty decent position but added another 500 shares at $22.24 for a 9.98% yield at the $2.20 distribution level, plus bought 20 contracts for the Jan 2015 20 call option at $2.45...(Break-even at $22.45)expecting price to recover to $23.25-23.50 by then for a projected gain on the option of 33-43%.
Now it looks like from your approximate after-tax, after-commission, avoid-the-distribution net gain of $0.27, you can deduct another $.20 with today's price move, so you're huge gain is really about $.07 per share.