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Inergy, L.P. Message Board

rrb1981 148 posts  |  Last Activity: 48 minutes ago Member since: Apr 18, 2001
  • Reply to

    Good call

    by rrb1981 May 1, 2014 2:00 PM
    rrb1981 rrb1981 May 1, 2014 3:41 PM Flag

    opinons, I am at a loss for words why you are concerned about the few well results in the Permian that have not been announced. This company is near $20 billion in enterprise value. It will take many monster wells to have a meaningful impact on the company bottom line. You're being lured into sands bait and switch tactic. He's a sucker for IP rates. He did the same thing with the Hogshooter and before that with the Granite Wash and the non-operated Bakken. Always pumping the board about the "next big well results". We saw how that ended in the Hogshooter didn't we (drug up and moved to Oklahoma side where they had a lower working interest)? Same thing in the Granite Wash, which is slowly becoming less important (even reducing rig count) as they move to better returning and lower risk, more predictable basins.

    Besides, we all know that IP rates are not nearly as important as cumulative production at 6 months, 12 months, 18 months 24 months and likewise, the decline rates at 1 month, 3 months, 6 months, 12 months, 18 months and 24 months. It is the IRR that people should be worried about, not the IP.

    IP rates are the sizzle, IRR's are the substance. Remember Brigham running their Bakken wells wide open (no choke) to inflate their IP rates, only to see massive declines thereafter? Cumulative returns are what is important. Heck, even the Utica producers are choking back heavily to preserve reservoir pressure, accepting lower upfront rate for better reservoir integrity and hence better long term returns.

    Furthermore, it is the collective returns of the whole lot of wells they are drilling, not a select few high performers or a select few duds. This is an E&P MLP, where cost of capital and returns are paramount. C-Corps don't typically pay out dividends, they can better weather the storm of duds.

  • Reply to

    Good call

    by rrb1981 May 1, 2014 2:00 PM
    rrb1981 rrb1981 May 1, 2014 2:46 PM Flag


    There were a lot of folks wanting concrete info on the Permian strategy. Linn is not going to give target dates. Look at what happened at EVEP regarding their proposed Utica divestiture. They gave dates and missed them. They got ripped to shreds by investors and analysts alike.

    In deals like these, it is best to simply state your intention of divesting and then announce the deal once it is signed and not make announcements on pending deals or potential/probable deals.

    I'm quite pleased to see a near 1.0x coverage, with many predicting "dire" results like VNR experienced, the .98x coverage was, in my opinion, superb.

    While the bump in the exchange ratio for Berry looks to have prevented distribution increases, the strong Q shows how beneficial Berry was to Linn. As I've stated numerous times, can you imagine the results without Berry? They'd be much worse without the accretion Berry provided. But accretion aside, the high IRR PUDs that Berry brought to the table were something that gets very little discussion. Linn's improved capital efficiency is almost soley due to Berry. Also chalk up that Berry's overall decline rate was much lower than Linn's and you see yet another reason why Linn made the deal happen. I think investors get too hung up on the distribution miss, and let's be clear, Linn totally screwed the pooch by giving distribution guidance before the deal was closed. It not only didn't happen, but it gave Berry plenty of leverage to ask for a better ratio. Of course, the SEC/Hedgeye attacks provided the opportunity for Berry to ask for more.

    That aside, Linn is slowly turning things around. 3 or 4 more Q's of solid execution in the base should prove to the naysayers that they can maintain production, reserves and DCF w/o deals. Any divestitures of Permian assets and or other acquisitions are simply icing on the cake. Moderation of the company wide decline rate and decreased capex will show up in '15 and beyond.

  • rrb1981 by rrb1981 May 1, 2014 2:00 PM Flag

    I'd say the call was good. Those that were expecting news on the Permian will simply have to wait. In the interim, you collect distributions on a monthly basis.

    Divestiture of the high decline and capital intensive Wolfcamp and swap out for mature, low decline properties will manifest itself in a lower maintenance capital budget and more stability (less reliance on results of new wells).

    Achieving a corporate wide decline rate under 20% would be significant.

  • Reply to

    Wolfcamp on the call

    by coochy.cooty May 1, 2014 11:14 AM
    rrb1981 rrb1981 May 1, 2014 12:05 PM Flag


    Trades will likely result in quicker "results" than JV'ing the property. I'd suspect that if they are saying there is plenty of interest, then, they likely have one or more deals working towards finalization.

    As we've all known from the beginning, this is going to be a lengthy process. I'm expecting slow but steady progress. In the interim, we now know that Linn can achieve close to 1.0x coverage ratio. That should calm the nerves of the jittery retail investors.

    It's a game of patience at this point but clearly the tides have turned. A string of trades over the next year resulting in a boost to the coverage ratio, DCF and a reduction in maintenance capex will resolve most of what the street has been concerned with.

    I bought some more LNCO today and now have my distribution reinvestment set up. Compound away.

  • Reply to


    by sailhappily May 1, 2014 9:55 AM
    rrb1981 rrb1981 May 1, 2014 11:55 AM Flag


    I doubt Linn has any interest in purchasing VNR. Their is very little ability to arbitrage any value out of VNR.

    Linn has far better opportunities to take advantage of buying either production from a c-corp, or buying the c-corp itself.

    Remember, the whole purpose of this company is to exploit the difference in valuation that the public market places on cash flows held in a E&P MLP/LLC vs those valued in a c-corp or held privately.

    It would be tough for Linn to purchase VNR and achieve any accretion.

    Instead, look for Linn to continue to buy packages that are being discarded by large independents that are looking to increase oil/liquids production. Examples include the Oxy divestiture of Hugoton properties (to Merit) and the Encana divestiture of properties to private equity. Both are large, mature fields that were monetized to pour money into rapidly growing oil programs.

  • Reply to

    seems if it was such good news....

    by barc37000 May 1, 2014 7:18 AM
    rrb1981 rrb1981 May 1, 2014 9:13 AM Flag

    Ellis has not performend up to the expectations of many, but he was dealt a tough deck of cards when Mike Linn left. Linn faced a huge cash flow cliff with declining hedges. He's done billions upon billions in acquisitions to turn the company around. The Berry deal was fantastic, despite the lack of immediate bump in the distribution. I liken Linn's turnaround to that of Energy Transfer, where Kelcy Warren did billions upon billions in deals that resulted in minimal distribution growth, but paved the way for long term stability.

    Does anyone realize what coverage would be WITHOUT Berry? Berry was very accretive, even at the final price they paid. It was the lifeboat that gave them huge oil potential and stable production to help dampen out their overall high decline rates, which were becoming untenable.

  • Reply to

    No problem, held serve

    by coochy.cooty May 1, 2014 8:44 AM
    rrb1981 rrb1981 May 1, 2014 9:08 AM Flag

    Agreed coochy.cooty.

    Coverage was better than some had predicted based on peers having issues. I think the basin diversity helped Linn whereas it likely hurt VNR.

    So coverage of essentially .98x, with 1 quarter of Berry under their belts and that Q was one of the bad weather Q's.

    I'd expect the next 2 Q's to be generally more favorable in terms of weather and hence should potentially have less impact on oil.

    For those that are disappointed, I'd remind them that this is what a "typical" E&P MLP is supposed to do, crank out steady (if not boring) results quarter after quarter, where they manage decline, commodity prices and cash flow. Linn was a little light this Q, but will likely be above 1.0x the next 2 Q's. We also have not seen the full impact of the moderating capital program, which will manifest itself in the form of reduced maintenance capex.

    If this drops much today, I'll add some more LNCO, which is still giving a very nice yield with the potential for nice capital gains when the divestment/JV happens.

  • Reply to

    Old Timers

    by plan.maestro Apr 24, 2014 7:27 PM
    rrb1981 rrb1981 Apr 29, 2014 12:06 AM Flag

    Indeed it is becoming interesting. The divestment of the minerals business was the beginning of the decline. I followed EROC because of the minerals business (i have very large holdings in DMLP and SBR) so I like to follow mineral rights holders as well as royalty trusts.

    Then the divestiture of the midstream was the second blow.

    Now, EROC will be a pure E&P, with a, as others have corroborated, less than amazing portfolio of assets.

    The only thing going for them will be the low leverage and the ability to lever back up, purchase some decent mature PDP assets. The real question is what will they be able to pay out...with them levering back up, the $.60 looks achievable but one must remember that Joe Mills runs this show, and he is a screw-up.

    It remains a very interesting opportunity.

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