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
The Three Forks might be the best land that Lightstream has an interest in and it has not been exploited. Let Crescent and the others drilling in the Torfquay-Three Forks prove up the value and then in 1-2 years Lightstream can drill the area. If the wells pay off in 1 year as indicted, this would be a game changer for Lightstream and the shares could return to the former highs in 1-2 years.
what the market might be saying is that investors are not all that bright. So tell investors if Linn has the ability to pay off every increasing debt when all cash flow goes to the distribution and capex.
Eventually the reserve life catches up with you especially as you increase debt every year.
The sad thing about McDonald's buying expired meat
and selling it is that the management in China
trusted the Chinese to not sell them tainted food.
Why would anyone who knows the Chinese
trust them to give them the required specified
product? I think McDonald's management was
When dealing with the Chinese you have to test
what you buy or you get inferior product-components
Tainted food, tainted water, tainted air are a given in
China. It is a major polluted
environment and that includes food and water and
it is only getting worse.
This is one reason that wealthy Chinese have been
flooding into home purchases in Australia, Canada
and the U.S. over the last decade. The city of Irvine
in Southern California according to the L.A. Times
this week is now 43% Asian.
You have to wonder about McDonald's management
not testing their food suppliers product every week.
I am not griping. Merely pointing out that Linn Energy was paying top dollar in the sector for Berry and Devon according to analysts that follow the sector.
Most energy companies including Devon and CHK have been attempting to improve the debt equation of their balance sheets.
Linn has not joined the crowd. Without excess cash that debt number grows which CHK eventually found out when its share price cratered in half.
It is a lesson all energy operations should pay attention to.
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.
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).
Shares have gone down to low of the last 5 years and most investors
including myself have lost big time over the last 5 years. Management
that watches stock decline for 5 straight years should have been fired,
but obviously, the Board of Directors is controlled by management so no
one is going to make any serious money in this investment. I am getting
ready to dump at the bottom and move on to something that might double
Ensco, Noble, Rig are all selling for less than 1X book value of the assets
on their balance sheets. This company is selling close to 3X book value of
Second, the contracts are short term now, about a year left and when they
are close to expiring in a year a lot of shares are going to try to exit all in
the same 90 day period and AWLCF will probably see constant pressure
from here on out on the price including the tax loss period during the last
30 days of the 4th quarter as many that are upside down will sell to take
Thirdly, what happens if one of the rigs takes some time to re-lease the
rig and they have a quarter with no income, just debt payments. The
negative news usually drives down shares.
Three reasons this is dangerous, especially during periods of war
and economic difficulties.
You have to take into perspective that the shares lost 20 cents during the last 30 days.
Agree, it is not the debt that caused the fall but the drop in the oil price which could
weaken further, causing more pressure on all oil and gas producers.
If it keeps falling a penny every day, I might have to enter sooner rather than later.
Appreciate your comments.
Try the Yahoo Finance graph for the last 5 years on OAS and CHK and compare the two. One company is up 60% over the last 5 years and the other is up 250% over the same period.
Let's deal with the real impact of that message and my comment.
I did make a slight miscalculation as you pointed out. SSE is taking off $1 billion of debt once they release the next financial statement in another month. Quite an impact on the performance of the shares don't you think.
The point I was trying to make and cheerleaders missed is that OAS and CHK had similar amounts of acreage in the Williston basin. CHK dumped their holding in the Williston( what did that achieve in comparison to OAS having a value of $6 billion based on the Williston. That is the real point.
The second major point is that OAS has $2 billion of debt and stock market capitalization of $6 billion. CHK has a stock market capitalization of $18 billion and $11 billion in debt. It's an issue of value and valuation as determined by investors.
OAS investors achieved a 250% return over the last 5 years on the Williston and CHK saw their company sell a similar amount of acreage in the Williston.
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.
I buy what you are saying but the cost of money to Linn Energy and for everyone else is going to increase when the FED gets off this cheap money environment. We have been in a very cheap money environment.
Cheap money is keeping housing from cratering but how long is that going to last to the detriment of savings, etc.?
All financing costs eventually go to the norm which in my book over the last 50 years is about 3 points higher on everything including Treasury paper and T-bonds and all other debt.
Linn caught a break on debt costs and hedging about 4-5 years ago. That is going away.
tobacco at risk? Give me a break. The dividends paid by the tobacco industry to its shareholders have been the greatest over the last ten years in tobacco's history. Same goes for the value of the companies.
These tobacco multinationals own interests in cigarette companies all around the world. Have you ever heard of China? Five times the size of the U.S. with the greatest per capita consumption of cigarettes on earth.
You really think the oil and gas industry is at risk? Carl Icahn is the largest individual shareholder in this company. How do you think he got to be so rich? Investing in companies that offered the best returns that is how. You do not become one of the wealthiest 50 Americans by being stupid and he did it by investing smart. That is why he owns more of CHK than all the posters on this message board.
say a great run company, how come the investing public has the shares at the low of the last 4 years. A dividend is nice but there has been no share price growth. Total return after the 15% withholding tax is not that great compared to many other dividend payers that also have share price appreciation.
Oasis (OAS) is worth one third the value of CHK and basically operates
on 500k acres in the Williston Basin about the same acreage that CHK
sold in the Williston area back in 2013.
I realize that OAS only has $2 billion in debt while CHK has $12 billion in
debt but CHK produces as much production in one of its major areas as
OAS produces for its entire company.
That debt is an albatross around CHK's neck and the company keeps
reporting sales of assets (another this week), but they are small potatoes
in comparison to the $12 billion debt.
It drives me crazy to see OAS at a market cap of $6 billion and it keeps
going up and up while CHK is going sideways.
Unloading $150 million in assets or $300 million has cumulatively not
reduced that total long term debt number, not in 2013 nor 2014.
I realize the balance sheet is being "de-leveraged" or whatever but the
shares are stuck.
I would not be surprised if OAS continues to outperform CHK in 2014.
Was it a mistake to sell the Williston acreage in 2013 for peanuts when
the companies in that formation have been going crazy in 2013 and 2014?
OAS seems to indicated that it was.
During the last week the price of LINE is down and over the last 2 days is up only about 10 cents.
EVEP is very interesting which says something about investor demand for EVEP. EVEP is up
$2.50 over the last two days and up $3.00 over the low of the last week.
In the end unit price is about investor sentiment and demand.
I own a ton of Linn Energy and very little EVEP but might have to reconsider EVEP
with only $1 billion in debt. Think about it, when was the last time a MLP in the
upstream of the sector moved $2.5 in two days. Very very interesting.
If we hit a rough patch in the market and values retreat, EVEP might be the better option
for distribution and price appreciation on the rebound.
The price had run up and it was selling close to 3x book value. Even though the platform rigs were purchased at a good price, investors were paying triple the cost of those rigs to the company. Not a great deal.
Also, the contracts are going to expire on the two rigs in another year. What happens if the new contracts have down time and no dividend? Also, what happens when all investors try to unload during the same quarter when these rigs are close to expiration. A small investor group on this exchange can get killed when too many of them see the risk all at the same time.
That is why most investors in this equity might not make any money even with a high dividend over 2014 or 2015. Investing in this security is more like gambling than investing unless you purchase at a price that is at the bottom or very close to the IPO.
Morgan and other investment banks do not help CHK as can be seen by the terrible
hedging done by the new crew. CHK management needs to understand that these
investment banks get rich by separating a client from his money. That happened
with CHK and that appears to be the reason CHK shares have been performing
poorly in the second half of 2014.
If the price keeps going lower, Chevron, Exxon or PB is going to join together with
Berkshire Hathaway in a joint venture to buy CHK and take it private before current
shareholders reap the benefit of the make-over of the balance sheet.
Still management needs to get smarter and understand that the investment bankers get rich off of their clients, not the other way around.