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Inergy, L.P. Message Board

rrb1981 119 posts  |  Last Activity: Apr 17, 2014 8:54 AM Member since: Apr 18, 2001
  • Reply to


    by m20m75ph Mar 26, 2014 6:39 PM
    rrb1981 rrb1981 Mar 28, 2014 4:38 PM Flag

    With these guys, it is usually the cumulative effects of numerous smaller deals that ultimately add up over time. It looks like the most recent deals appear to be good adds.

  • rrb1981 rrb1981 Mar 28, 2014 9:13 AM Flag

    I appreciate and am flattered by your continued concern with me sandy.

    BTW, Linn bond still not at $40, but no matter, I've picked up a good chunk of LNCO on the cheap and even without capital appreciation, I'll be making nearly 11% while you cheerlead for us. Get your pom-poms out and get busy.

    And yes, we are all able put estimates on the Wolfberry. What I have yet to see is anyone produce a detailed analysis where they separate out the value of the existing production from the undrilled acreage. Comparing purchases of largely PDP properties (such as BBEP's 400 acres with 6 producing wells on it) to our Wolfberry acreage is not an apples to apples comparison. We have both existing production AND 55,000 acres of undrilled acreage (undrilled in the Wolfberry that is, likely already producing in other zones). Perhaps you can scurry off and find that work, then come back and copy and paste it here for us?

  • rrb1981 rrb1981 Mar 27, 2014 11:42 PM Flag

    Keep trying sand.

    Keep trying.

    Oh, Linn bond still not at $40.

  • rrb1981 rrb1981 Mar 27, 2014 11:27 PM Flag

    You are right, it got to $42, not $44.

    And you are going to have to get those pom-poms out and do a lot more cheerleading sandy if you want to get it back to $42.

    Linn bond still not at $40.

  • rrb1981 rrb1981 Mar 27, 2014 11:23 PM Flag

    Linn has had to deal with high dollar natural gas hedges rolling off the books for years and being replaced with lower dollar hedges, which hampered margins and forced them to make a lot of acquisitions to plug holes in their DCF.

    You can actually go back and look at the Quarterly Supplemental Reports and see the margin compression. But I'm sure you'll think of some nonsense to try and spin it into

    If you struggle finding the Quarterly Supplemental Reports, I'll be more than happy to help walk you through it.

    Maybe your buddy Clay can help you?

    Linn bond still not at $40.....

  • rrb1981 rrb1981 Mar 27, 2014 11:15 PM Flag

    And despite all of your efforts..Linn bond still isn't at $40.

  • rrb1981 rrb1981 Mar 27, 2014 10:07 PM Flag

    As you will recall, it was you that used to refer to the Hogshooter as ("that funny word again"). And again, if the Hogshooter was so fantastic, why is Linn only at a 1.0x coverage ratio? And I see you still haven't progressed past looking at IP rates instead of IRRs. Pity. You seem like a smart chap, you'll see the light some day.

    As for what you believe and don't believe about what I post, I couldn't care less. On the other hand, you seem obsessed with commenting on every post I make. Hopefully you can get over your man crush on me?

    And yes, while I have been critical of Linn (even going back to the days when Jack was here) I am now recently long (thanks for cheering on OUR company sandy).

    I prefer to buy value. And for the record, Linn has fallen from $44 to $27ish while I was critical. Will it go back to $44 now that I am long?

    I added LNCO(10.5% yield) and KMI (5+% yield for a quality GP!) recently. What other nice bargains will Mr Market provide next?

    Hey, on the bright side, if you get Linn back up to $44 for me, that will be over a 50% gain on the equity, plus a 10% yield while we wait.

  • rrb1981 rrb1981 Mar 27, 2014 9:50 PM Flag


    I understand your point and concerns, but I disagree.

    Maintenance capital is capital set aside to maintain production/reserves/cash flow. Growth capital is intended to increase production over that baseline level (which should result in an increase in DCF). Also, growth capital should likely require a funding source (debt and equity typically). Maintenance capital shouldn't require an external funding source, it ought to be set aside from cash flow from operations.

    I do however notice that another E&P MLP (not Linn) has some fine print boilerplate that allows "management discretion" in determining DCF. I think the intent is allow management to include/exclude special and one time events. That does open the door for gimmicks.

    But the reality of it is, maintenance capital can be difficult to calculate. The National Association of Publicly Traded Partnerships had a forum a year or two back with 3 E&P MLP CFO's discussing maintenance capital and fielding questions.

    They agreed that each company views it slightly different, that they make assumptions on reserves and production rates. It isn't an exact science. I think they ended up making a good case for running with a 1.10x coverage ratio.

  • rrb1981 rrb1981 Mar 27, 2014 9:34 PM Flag


    Good summary. I think current Linn average decline rate is mid 30% per management. Divestiture of the Midland should reduce that to a more manageable level.

    Also, for some decent comps, listen to Legacy call, they mention their own fight against the Wolfberry decline). Also, pretty nice deals they just made.

    And you are correct, the 10-11% equity is expensive for financing acquisitions.

  • rrb1981 rrb1981 Mar 27, 2014 9:18 PM Flag

    When I want to know what you are guilty of, I simply look and see what you are accusing others of doing.

    Yes, that's right. I don't believe a distribution cut is in the near future. I'm also long LNCO.

    I like buying low and at a discount to NAV and also buying LNCO which is trading at a discount to Linn. Graham and Dodd may be old school, but it still works.

    I'll let you continue to do the cheerleading though, you're much better with the pom-poms. Maybe if you try real hard you can get Linn bond back up to $40 for us?

  • Reply to

    Delayed cash generation

    by lesspheus Mar 27, 2014 6:44 PM
    rrb1981 rrb1981 Mar 27, 2014 7:44 PM Flag


    In your $2 billion projected valuation, are you assigning a value on the 17,000 boepd of existing production and a separate valuation on the undrilled 55,000 acres?

    I'd be curious if any of the brokerage houses have done any work on this. Having some more info on the breakdown of the 17,000 BOE/day (oil %, gas %, ngl ) and average decline rate would help.

  • rrb1981 rrb1981 Mar 27, 2014 7:34 PM Flag

    "Confirms distribution expected to be "fully covered"
    Only because they reduced the capital spending by $250 million. I'm fairly sure Wall Street figured that out almost immediately after they saw the guidance.
    That's not an accurate statement above. If you understand the difference in maintenance capital and growth capital, you'd understand why it isn't true. The reduction in coverage ratio is however a function of the reduced growth capital program (that's direct from Linn management by the way before anyone wants to argue it).

    You do not increase DCF by reducing growth capital. You could increase DCF by reducing maintenance capital (if for example, you could drill and complete wells cheaper and realize the same production and reserves). It all goes back to what their primary goal is (and it is interesting to see the wide array of objectives across the E&P MLP sector). Some E&P MLPs wish to maintain cash flow (Vanguard), some wish to maintain cash flow and reserves, some wish to maintain cash flow, reserves and production (most conservative!).

    VNR's approach is that they will happily replace 6 mcf of gas production with 1 bbl of oil production because the margins are higher. They could actually let production drop, and still maintain cash flow.

    As for the distribution cut, I'd bet that a cut isn't in the near future. I keep waiting on someone on the board to make some sort of side wager on this... Can we get one of the IB's to create a synthetic distribution that we can bet on?

    I do agree though that investors should proceed with caution. It appears many of them invest before doing due diligence.

  • Reply to

    Can Someone Tell Me What I'm Not Understanding?

    by wentkerl Mar 26, 2014 7:40 PM
    rrb1981 rrb1981 Mar 27, 2014 12:54 AM Flag

    No confusion whatsoever.

    But I'm flattered you care so much!

  • Reply to

    Can Someone Tell Me What I'm Not Understanding?

    by wentkerl Mar 26, 2014 7:40 PM
    rrb1981 rrb1981 Mar 27, 2014 12:11 AM Flag


  • Reply to

    Can Someone Tell Me What I'm Not Understanding?

    by wentkerl Mar 26, 2014 7:40 PM
    rrb1981 rrb1981 Mar 26, 2014 11:20 PM Flag

    As usual, you let your anger get the best of you. Linn bond still not at $40?
    I never said that transactions wouldn't take place, I simply stated that absent any deals, investors shouldn't expect a distribution increase. Coverage ratio is projected to be this statement is hardly a stretch. Heck, you have clowns on the board discussing distribution go blow your hot air somewhere else.
    On the otherhand, I'm quite happy to be buying at current prices, even with a static distribution. Gotta love locking in a near 11% yield. I'm pleased to be buying production/reserves that no longer have an LLC premium attached to them.
    As for the 8 Permian packages, we'll simply have to wait and see. While I firmly believe they will find buyers, I am not convinced that they will all be divested in '14. I suspect Linn will be very dilligent in taking their time and maximizing value. With a 1.0x coverage ratio projected for '14, they aren't in a position of needing to panic sell. And I'd like to comment that even if Linn were to divest a number of these packages and pursue a 1031 exchange, it still might take several months for the transactions to materialize certainly on the front end. Take a look at Legacy Reserves, which is also working to divest its Wolfberry assets. These deals are complex and time consuming. But, by all means, continue cheerleading. It didn't stop you at $40, it shouldn't stop you at $27. I'll simply wait patiently and collect the monthly distribution. If they materialize, it should increase coverage ratio even if they elect to not increase the distribution. Any increase is just icing on the cake at this point.

    And, frankly, I doubt seriously that my view on Linn's distribution growth (or lack thereof) is unique. But again, that has never prevented you from fabricating statements and opinions for others.

  • Reply to

    Can Someone Tell Me What I'm Not Understanding?

    by wentkerl Mar 26, 2014 7:40 PM
    rrb1981 rrb1981 Mar 26, 2014 10:04 PM Flag

    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.

  • rrb1981 rrb1981 Mar 26, 2014 4:46 PM Flag

    I'd be very shocked to see a distribution cut. They projected a coverage ratio of 1.0x for 2014 absent acquisitions or any transactions involving the Wolfberry.

    Growth of the distribution in '14 is unlikely. I've been a bear on Linn for many years until post Berry. Now, the premium valuation is gone (trading at NAV or less). The other major consideration is that Linn's hedge book is now largely in line with the market price. They no longer are "living" off their hedges as they did in years past, which forced them to make the Berry deal to plug gaps in their DCF as high dollar gas hedges rolled off the books and were replaced with much lower priced hedges. They are actually nearing a sustainable point.

    The Berry deal helped restore the balance sheet and give them plenty of high IRR PUDs, which they needed.

    I also think LINE/LNCO are nearing a bottom. Might be a few more days of heavy selling, but again, when they are trading at less than NAV of the private market value of the production/reserves versus the enterprise value, the bottom is likely closer than some bears may think.

  • Reply to

    The person in charge of Linn's IR

    by fezzywigsattitude Mar 25, 2014 3:40 PM
    rrb1981 rrb1981 Mar 25, 2014 4:06 PM Flag

    Determining the value of the Wolfberry acreage is going to be a futile excercise. Linn has (8) distinct packages, the working interests vary, the quality of acreage varies, we have no idea how much of the existing 17,000 boepd is going to ultimately get divested, we have no idea what the overall decline rate of that 17,000 boepd is (and thus whether it should be valued as long lived low decline or as flush production that will rapidly decline). Furthermore, no one knows the exact breakdown between oil, gas and ngls.
    What we do know is that the value isn't reflected in the current pricing of LINE/LNCO. With Linn essentially trading at NAV (actually well below NAV) of the mature production/reserves and no premium assigned for the LLC structure, the upside is quite interesting.
    It is quite easy though to grab comparable (recent) transactions and take a good blend of 3 or 4 of them. Some of the deals I have seen recently were heavily PDP which clearly does not value the untapped potential of the Wolfberry. The recent BBEP deal for example was a little over 400 acres, yet involved something like 6 wells on the property, leading one to question how much was PDP and how much was PUD. Probably not a good example.

    One can easily find plenty of examples of mature, long lived production transactions where one can simply look at the multiple paid on the cash flow, set aside an appropriate percentage for maintenance, and then be left with a reasonable approximation of accretive cash. With a divestiture or trade, Linn is converting a non productive (but highly prospective) asset for a productive asset and not issuing equity or debt.
    While I wasn't a fan of the first Jonah deal (overpaid), the Encana package (that may be going to Carlyle/NGP) seems like a very good fit with Linn (economy of scale with existing former BP Jonah assets, extremely long reserve life, relatively low decline [sub 10%], gassy etc).
    I picked up some more LNCO today while the discount lingers.

  • rrb1981 rrb1981 Mar 24, 2014 4:29 PM Flag

    I'd be surprised if Linn cuts the distribution. They are projecting 1.0x coverage ratio for '14. It seems unlikely they would cut, then turn around and monetize/trade/JV the Midland Wolfberry, which btw, should be very beneficial to DCF.

    Of course, the Midland Wolfberry stuff may take time to materialize but with a 1.0x coverage ratio, they don't need to rush.

    I think they need to simply string together a few Q's of successful operations and achieve the 1.0x coverage. The Wolfberry may materialize in '14, but it may take time especially if they JV it.

  • Reply to

    JPMorgan lowers rating

    by bobcc21 Mar 24, 2014 10:42 AM
    rrb1981 rrb1981 Mar 24, 2014 10:46 AM Flag

    LNCO to LINE discount appears to be holding steady at roughly $1.00 which is interesting given that it traded at a premium for so long.

    Despite the downgrade to "hold", it looks like a decent buy at these prices (I've been buying). 10% yield. Coverage of 1.0x before any additional acquisitions or divestitures of Permian Wolfberry acreage.

    At this point, there isn't much the company can do aside from execute on their '14 Projections.

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