Should have added that coupling my KMI buy, with continued LNCO purchases, 2014 is turining out, despite the market getting very frothy, to be a good year to pick up value. Got to love Ben Graham and buying dollar bills for $.70 on the dollar.
Also pleased to be buying WRES, which I consider undervalued and an ideal LNCO acquisition candidate due to low leverage, high PUD and oily composition with option value on the CMB assets.
Continuing to DRIP my EPD, PAA, SXL and now DRIPing LNCO letting cash accumulate on many others.
Also been continuing to add modestly to my SBR and DMLP positions, which are shaping up nicely.
I'm pleased with the KMP and of course KMI results. Slow and steady wins the game. I'll take the $.01/Q dividend increase at KMI. Thanks to Hedgeye for allowing me to pick it up on the cheap.
Even though KMI (and KMP) are massive entities that are not going to be able to grow at rapid rates, it is still nice to have some bellweather stocks in my portfolio that I know will crank out modest dividend growth year in and year out.
Furthermore, based on KMI management projection, if things go as planned, we are looking at a couple of more $.01/Q dividend bumps later this year. Couple that dividend increase with the nice stock and warrant buybacks and it is shaping up into a nice total return for '14.
A GDP type jump might happen with the announcement of terms involving the Wolfberry, be it a JV, an outright divestment, a like-kind exchange ("swap") or some combination.
Or the market may continue to ignore the value and its impact on DCF and DCF/unit.
I continue to add to my LNCO position several times a week in small buys. The market is getting frothy (my opinion), so I enjoy buying undervalued stocks. Also still adding to KMI and WRES.
thegreatone561 (aka braf)...
Linn has openly stated it is in the market for mature, shallow decline properties and is open to divesting, JV'ing their higher risk(and return) capital intensise Wolfberry properties. So they are both looking to buy and sell.
Ones personal politcal affiliation should have nothing to do with Linn's strategy of buying or selling properties. And, one can only hope you don't put too much credence in a rag like Motley Fool.
Well, it looks like you are capable of learning.
So now you admit that debt/ebitda is indeed a real metric and one that must be monitored as referenced by your response that they need to acquire a low leverages c-corp (via LNCO) to further lower their leverage.
You admit that coverage ration needs to be improved (especially in light of the fact that the company has temporarily abandoned their 5-6 hedging policy).
And, for once you got something right (big applause), Linn is not liquidity constrained. Of course, I haven't seen anyone posting as such on the board.
To complete the trifecta, you need to go ahead and admit that Linn's average annual decline rate of over 30% was becoming untenable, especially in the face of less than stellar and unpredictable Hogshooter results (that were meant to be the growth avenue for the company, but instead, became a real burden where they got less than acceptable returns).
Oh, and you are incorrect again, ratio and ration aren't not synonyms. Sorry..
I bought some more LNCO today (yep, even on an up day).
Patiently waiting on either a Permian sell to goose DCF or on acquisitions (assets or whole companies). Even if they only raise DCF, and not the distribution, the perception of stability should help stabilize the price. The upgrade today of LNCO was interestng. In a market full of overpriced equities, I'm thrilled to be buying LNCO at under NAV.
Now, we just need our lil cheerleader sandy to get his pom poms out and start telling us about all of those gushers.
First, it is ratio, not ration.
Second, as you are so very predictable, you make an accusation but fail to provide ANY facts to back up your assertion.
Third, you really need to take your meds, or lay off the bottle. You continue to be incoherent.
But, in rebuttal, my statements were fully correct and it is obvious that you are letting your anger and hatred get the best of you again. Your animosity for me is such that you feel compelled to comment on every post I make, yet seldom have I ever, unprovoked, commented on any of your posts (mine are always replies back to your unfounded allegations and innaccurate innuendos). Even if I were to copy and paste an exact message of yours, you would disagree with me, for the simple fact that you've tied yourself in knots and I've been one of those on the board that have openly laughed at your childish attitude.
As I said a long time ago, I'm not going away from the board, so you might as well resign yourself to the fact that I am here to stay. You can continue to comment on my messages as you wish, but you must realize that your attacks are only filling the board up with non Linn focused messages, which somewhat defeats the purpose of this board. You like to prattle on about politics and ethanol, which are not terribly germane to Linn's success on a day to day basis. Yes, legislation impacting the MLP sector is germane, and yes, the impact of ethanol on refined products is germane, but you utter nonsense day in and day out about corn prices isn't impactful to the discussion on NGL prices, natural gas prices, rig counts, or other E&P cetnric topics.
The barter system as you put it opinions, is very elegant for the Wolfberry.
Linn's current equity price dampens accretion (over 10% yield), so swapping higher risk (albeit much higher return) unproductive acreage that requires enormous amounts of capital for mature, low risk, low decline production that will add immediately to their ebitda makes a lot of sense.
It also helps them avoid any taxable gains (1031 exchange).
It raises coverage ratio more meaningfully than undergoing a full development program that is capital intensive and requires debt and equity issuance to fund.
Note that Legacy Reserves is doing the same with their Wolfberry acreage as is EVEP with their Utica acreage.
I'm also pleased to see that you pulled your head out of the ground and realized the Permian assets were worth more than $1 billion as you alluded to a week or so ago. The production alone is worth well more than $1 billion (17,000 boepd) and you were off spouting about doing a $1 billion unit buyback (not going to happen). Every bit of the proceeds will be redeployed into production. One, because it will increase their ebitda, which will lower their debt/ebitda metric and actually increase their borrowing capacity, and secondly because doing the buyback would not raise ebitda, it would raise DCF/unit, but so would increasing ebitda without increasing unit count. How simple you must be to think an MLP of this size would do a unit buyback of $1 billion. How simple..
$1 billion in proceeds would likely result in near $140 million in additional EBITDA (made at an industry standard 7x multiple). The board can rest easy at night knowing norris isn't making the financial decisions for the company!
You said "LINE had no trouble with the banker as proven by the acquisition done on bank credit at very favorable terms"
Please show exactly where I said Linn had bank problems. Here's a hint, you won't find it because I didn't say it. You like to fabricate and twist, but the fact of the matter is that you can pull brokerage reports and see that Linn's debt to ebitda metric was out of control, (Kolja even said it on a conference call, but you'll overlook that).
The Berry deal pushed it back down, which is no wonder the banks were more than happy to continue to let Linn borrow, and will no doubt continue to let them borrow in the future, especially now that they've pushed the metric all the way back to under 4.0x from 5.0x.
You got upset when I used the term "$ per flowing barrel" and "$ per flowing mcf" , being so foolish as to say they did not even exist. Yet, upon being shown links (when yahoo still allowed links to be posted) to other E&P publicly traded company sites and presentations that also used that metric, you quickly pretended like it was a non event.
Additionally, despite all of your attempts to be the board dictator and try to convince or brow beat others into seeing things your way, you have not ONCE, not one single time, in all of your thousands of foolish diatribes, not one single time, EVER managed to correct a single mistake that anyone made. Instead, you prefer to cast a very loose and broad generalization that someone is wrong and has their facts mistaken, yet you never once, not one single time have you ever managed to actually prove your point and back it up with fact. It's a very simple, 9th grade level debate tactic. Make the accusation, but never present the facts. Your as much of a muckraker as the clowns at Hedgeye or Barrons. A good adaption would be, if you want to know what norris is up to, look at what he is accusing others of.
The board sees you as what you are, a weak, insecure academic that has no real life experiences and looks to assert yourself in a digital world because you clearly can't do it in the real world.
And despite being a LNCO holder (and feeling pretty good about buying gobs of LNCO the last 3 weeks at sub $28 prices)I have to confess that it is quite funny for me to say "Linn bond still not at $40"
I eagerly await your reply.
"OLB the hive mind taking turns with the personas and voting does do not the rrb racist logical or even correct."
First of all, we are going to need you to lay off the bottle, or start taking your meds. Your sentences are incoherent.
Secondly, in your typical fashion, you like to call names and act like a prepubesent child, and of course, make very broad, vague generalizations, but never post facts.
You've been upset with me for about 3 or 4 years. Ever since I started posted comments that were contray to what you and your lap dog sandybody (of rose colored glasses fame) seemed to believe.
I posted that Linn needed to curtail their aggressive drilling as their decline rate was getting untenable. You denied it. Now Linn is publicly acknowledging that they are looking to reduce drilling and temper the decline rate back to something more manageable for an E&P MLP.
You got upset about 18 months ago when I commentedd that Linn was no longer reporting their Debt to Ebitda metrics. You even got confused and started babbling on about interest rate coverage. You stated it didn't matter, that they were immune, they had lower borrowing costs, that the sky was the limit. Now, one of the key tenents of the Berry merger was the fact that all consderation (aside from assumed debt) was equity and that the transaction would be very deleveraging and drop the company back below a 4.0x ratio from the 5.0x ratio that they had bloated into.
You got upset when I repeatedly pointed out that Linn's realized gas prices were dropping. You babbled on (and on and on) that margins were all that mattered, the difference in the buying price and the selling price. you neglected to acknowledge that deals made 3 or 4 years ago were now being rehedged at significantly lower margins and DCF was taking at hit.
You got upset when I commented that Linn was not meeting their own published capital efficiency targets in terms of distribution growth per unit per $ spent.
You could be correct on the 3.0x target. It may have been a swipe by Barron's. But clearly 3.0x gives them more flexibility than 4.0x and 4.0x is much better than where they were a year ago before Berry and after the Hogshooter debacle.
As an example, the recent IPAA presentation by Legacy Reserves (a Permian centric, oily E&P MLP) stated their target metric as 3.0x.
3.5x is probably fine but lower leverage allows more freedom on bigger deals or during times when their equity price is weak. At the end of the day, being bigger does give you some benefits but leverage is still leverage.
The leverage issue is well known and documented. It is one of the reasons I keep reminding people that the Berry deal was fabulous, even though it did not result in immediate distribution growth. Not only did it shift the companies commodity mix from gas heavy to liquids heavy and lower the companies overall average decline rate it also shifted the debt/ebitda metric back from near 5 to just under 4.0. The target being 3.0x means ebitda needs to rise without a lockstep increase in debt.
That necessitates some combination of a purchse using far more equity than debt, or a monetization of the non productive Permian acreage and converting it to mature, stable cash flowing assets.
A combination of those 2 above mentioned actions would likely lower the debt to ebitda metric towards 3.0x and giving the company more flexibility. You can do the math, with target Ebitda being around 2.3 billion for '14 and debt of around 9 billion. Throw together a quick spreadsheet and make assumptions on what kind of ebitda might come along from a 1-2 billion monetization of acreage (but be sure to account for any lost ebitda on divested production!). Similarly, you can look and see how a $1 billion dollar deal using all LINE or LNCO equity and assuming a decent multiple on ebitda (plenty of examples!) would move them back towards a solid 3.5x ratio. As was mentioned previously, growth capital must be financed, at present, Linn has ~$750 million of 2014 growth capital that must be financed. Running with a coverage ratio of 1.10x or 1.15x would significantly reduce the amount of external capital that needs to be raised. As we all know, this growth capital number is also likely to come down as well.
In the eyes of the bankers, the Berry deal was a homerun because the greatly lowered the risk profile by lowering their debt/ebitda ratio. Subsequent deals, even if only marginally accretive, if they lower the debt/ebitda metric, will likely be looked upon favorably by analysts.
Furthermore, the recent transaction on the market did not include value for existing production, undrilled acreage only.
Of course, any production divested will need to be replaced, but it highlights the potential value of the acreage.
I'm feeling pleased to be buying LNCO at such a nice discount to NAV and a yield nearing 11%!
It was interesting to see that the Wolfberry portion of their capital program is projected at $275 million.
This is the active drilling program that they are using to develop and prove up the acreage, but are looking to "hand off" to whomever purchases some or all of their acreage. It's an interesting selling point, given how difficult it can be to line up drilling rigs, frac crews etc. That is an aspect often overlooked, but those that remember the heady days of the natural gas boom can attest to how many E&P companies were constrained due to rig and frac crew availability. Having the Wolfberry program running keeps those crews occupied and also helps prove up the acreage (presumably) making it more attractive (more PUDs) and greater delineation.
A drop of $275 million off the current budget is quite meaningful (another ~11%) and one can only imagine what 2015 would look like with the removal of the high decline and replacement with 10-12% mature decline properties. I'd venture that additional funds would drop out of the maintenance capital budget.
Also worth nothing that yet again, the 2014 distribution is projected to be fully covered...
You are incorrect yet again (as always). I have never owned VLO, nor do I follow it. You are confusing my moniker with someone else.
I think it is laughable for posters to even try to compare Linn to a midstream MLP, especially a well integrated, capitalized MLP with fee based revenue.
E&P MLPs, especially those executing massive drilling programs, ought to run with a minimum of 1.05, likely a 1.10x. As we have seen, even management can make MAJOR mistakes in their projections and expectations. Look at how Linn had to drag up and pull out of the Texas Hogshooter. They placed a huge bet on that field and had were forced to eat crow. Fundamentally, their shift to more mature, legacy production, and covering the DCF with base line production rather than through production growth mitigates a lot of risk.
It's why I've been buying LNCO below $28 for the past 3-4 weeks. I see a transformation, where, capital may drop yet another $275 million. And who is to say we won't see further reductions, taking more stress off the balance sheet and also taking execution risk off the table. Returning the company to a blended average decline of 12-15% will do wonders for the coverage ratio and balance sheet.
The LNCO creation was a good move to garner more support, both institutional and retail. We'll have to see in the long run if it is effective.
Kinder (and Enbridge) did a really nice job years ago with KMR and EEQ I-units, but I suspect if they could do it over, they would have created something like LNCO, rather than a PIK.