By my math, in order to keep TLP unit holders whole on the distribution would result in an incremental $8 million in DCF (the additional $.43/unit to TLP plus the IDRs multiplied by the total TLP units outstanding).
So the reality is it is a $2 million per Q draw...not too bad.
At 10-12% growth per year at NGL (distribution), it still takes nearly 2 years to catch up, especially if TLP were raising at 1-2% per year. That means you are looking at year 3 before you come out ahead on income, though clearly you probably would have gained on the equity appreciation of a 10-12% distribution growth...but this does require NGL to indeed hit that growth rate for 2 years, which may or may not happen. What if the economy slows down and NGL only manages 7% distribution growth. Then you are looking at 3 years before you break even on distributions.
I think NGL needs to close the gap. A 1.10x would be more palatable...still results in a small immediate distribution "cut" to TLP holders but does protect them against a softening of distribution growth at NGL.
Now NGL is offering to exchange NGL units for TLP units on a 1:1 ratio. Meaning TLP units would effectively take a 17% distribution reduction, if I am indeed understanding the exchange correctly. $2.21 vs $2.64
Hopefully the proposal will be declined by the conflicts committee but as a reminder, this has happened in the past at both Teppco (bought by Enterprise) and also at Penn Virginia (bought by Regency) and NGL will at the very least make TLP holders "whole" on the distribution, which would mean a nice premium on the equity or they could raise the NGL distribution from $2.21 to $2.64 to keep them whole. Both of those will be difficult given the amount of increased DCF it would require.
Not liking this transaction as it currently stands.
I notice you dislike it when I draw attention to the fact that you have (2) avatars. What a joke. Even sandforbrains used to make fun of and accuse others of having 2 avatars.
Yes, you are noticeably silent on your use of 2 avatars...noticeably silent.
Agreed. I think Linn will keep the distribution at $2.90 thru 2014.
They have a lot of moving pieces with the Wolfcamp divestitures, the new Hugoton properties to integrate into their existing Hugoton field, the Devon assets, divestiture of the Granite Wash, potential divestiture of the remaining Wolfcamp properties. Plus, they have the issue of the '16 natural gas hedges being lower and they have to deal with lower oil futures (and they haven't hedged nearly as much). All of this bodes for Linn simply sitting tight in '14, letting it be a year of consolidation. Having some cushion is important.
They need to let coverage trend towards 1.10x for the simple sake that 1.10x coverage provides nearly $100 million in growth capital that doesn't require equity or debt. That $100 million in coverage can be used to help make up for shrinking margins in '16 on the gas side and on the oil side. With the divestiture of GW and much of the Wolfcamp, the maintenance budget will drop taking a lot of execution strain off the company.
I don't look for anything more than 3-4% pedestrian level annual growth for Linn from here on out. They are a $10 billion market cap, $20 billion enterprise value. Hard to move the needle on 330+ million units.
The recent deals though have materially de-risked the company and largely removed the sustainability question.
I see you busted out the dadnorris1 and norrishappy #$%$ today in near sucession. I guess you felt the need to give yourself a thumbs up.
Laughing at the fact that you feel the need to have multiple logins. What a clown.
thegreatone561 (aka Mr Barf), you do realize that interest rates are slowly moving up? Have you checked lately? Check your local credit union or bank. You'll see both higher rates for lending as well as for savings.
Yes, management did a very good job of sticking to their guns and closing the Berry deal despite a lot of foolish unit holders crying for it to be scuttled.
Linn's financials would have been a nightmare without Berry.
You are trying to mix 2 things that are not up for comparison. Hogshooter disaster brought on the need for Berry. Berry deal while increased tremendously from the original ratio, provided Linn with plenty of qualityoily PUDs and the solid world class California operations, and you are mistaken (you need to borrow sands calculator), it wasn't dilutive. You need to go back and look at the 10-Q data, more specifically the cash flow and then the number of units issued. The deal was accretive, not to the degree that Linn management originally had projected, but rest assured, you dilutive call is dead wrong. Sorry, but then again you are used to being wrong, much like the ash clown sandforbrains.
Why do you address Mr Barf (yourself)? We all know you simply signed in under a different login!
You can blame Obama and the SEC all you want but that won't change reality.
As for Berry, Linn is lucky they were able to close the deal. It saved them...despite what many clowns think, I was accretive and also provided them with a tremendous portfolio of high IRR oily PUDs. I've said it many times, for those that didn't like the Berry deal, they really wouldn't like the picture if the deal had fallen apart.
I notice Linn announced the distribution. Yet again, sandforbrains was proven wrong. I guess he won't be returning again for at least another month due to his epic fail on distribution increase projection.
Laughing, at sandforbrains...the poor nervous twit. Hopefully he returned to mutual funds and CDs.
Actually, I doubt Linn has any greater knowledge on this package of assets than Devon. It really speaks more to the difference in business objectives of Linn and Devon. Linn is looking to acquire and exploit mature, low risk, low decline production to generate cash flow. Devon is looking to monetize these low growth assets to redeploy that cash into growth in oily assets.
This swap is really about taking execution risk out of the picture. Linn will divest their Granite Wash assets which are not fully developed and will replace them with these assets. Overall, we will see a massive lowering of the companies overall decline rate, which will drastically reduce overall maintenance capital. This in turn reduces their need to be so aggressive in drilling, reducing their capital intensity and allowing them to focus on their highest IRR properties, thereby increasing capital efficiency.
As I said before, the board is much cleaner without the nervous twit sandforbrains. He could never learn, a faulty condition in his wiring. His departure significantly raised the average IQ on the board.
Hogshooter was a disaster. You can spin it anyway you want. Try to hide poor results by saying they are "ex ante" or variable. The results speak for themselves, Linn took on a lot of risk that they didn't account for and got burned. Linn, despite the "stellar" management has not been able to achieve coverage of 1.0x for some time. Now, finally with the XOM deal and this latest are they finally digging their way out of the huge hole they put themselves into.
Of course, management is finally doing what the street said they should do all along, which is to abandon the foolish hybrid model and return to the classical E&P MLP model of buying long lived, low decline, easy to manage properties and operate as an arbitrage vehicle. Trained monkeys are finally learning and returning to the model after learning their lesson as unit holders expense.
Regardless of why sandforbrains left, the board is in unanimous agreement that his departure was an improvement to the quality of the posting. He had no purpose on this board (actually truth be told, no purpose in life, just a piece of #$%$).
I'm glad he is gone and cherish on refreshing the board has become without his stench.
We don't know full extent of coverage yet, but it should be materially higher once all of the puzzle pieces are in place.
As I've said before, Linn is slowly rebuilding this company back into the mold that they abandoned several years ago. They are coming full circle and the unitholders are now the better for it.
Now leverage must be dealt with and growth prospects will once again be restored.
Yes, it was sandforbrains hubris that forced him to leave. His inability to deal with his imperfections. He deep need to seek approval from the board. He never received it, and he left like a petulant little 5 yr old. Stormed off pouting and muttering nonsensical gibberish.
They mentioned the Granite Wash in the release, but the reality is that it doesn't matter if they fund it with proceeds from the Wolfcamp II or GW.
The key item is that the interim financing goes away and they do not need to either issue equity or debt. This is about rationalizing the portfolio and removing the portions that do not fit well in an E&P LLC. Linn has proven that they could not manage a hybrid LLC. Now, we should expect results to be much less volatile and management should have a much easier time dealing with operations rather than on whether they are drilling dry holes. The original model was good and they are finally returning back to it after what can only be described as an ill fated foray into being a hybrid. Now with original game plan back in place, it should be back to arbitrage as usual.