I'm very long LINE and will hang around for a while after getting in during the July fireworks, but I can't make sense of the expectations of high thirties and $40/unit. Today the distribution is $2.90, and we're around a 10% yield. Not at all unusual for an E&P MLP. LINE has certainly traded at lower yields, but that was back when they could do no wrong and had years of smooth sailing behind them. After a year like 2013, I would expect them to trade at a higher yield, at least for a while. Even if they bump up the distribution to $3.08 as was once discussed, a 10% yield still has us in the $30s. Over time I believe LINE can earn back trust and get a lower yield from the market, but I think it will be months if not years. I feel like it's too simplistic to say it's the same LINE as before but with Permian and Berry so the price should be higher than it was before. That ignores any assets that did not meet expectations and any assets that were unable to replace reserves via drilling (because every well's volumes decrease every year). Remember that because of LINE's size they either NEED outstanding drilling results to remain in the same place OR really big acquisitions just to remain in the same place. Would love to be shown what I'm missing, but that's how I read the tea leaves.
Berry shareholders are not "giving up" $7.25 if the vote were held today. They can easily see it as an attractive proposition at this spread or even higher spreads. How much per share value should the Berry shareholder attribute to 10 years of distributions at $3.08 per year? Undiscounted that's $30.08 per share. And then the next 10 years. Obviously we don't know if Line deliver that much or lower or higher, but that's one of the things a Berry shareholder, especially an institutional investor, will be analyzing right now.
question for the_nerdy_guy - today LNCO is around $30, and major BRY shareholders know it will improve with a yes vote on merger, but even at 1.25x the current $30 price each BRY shareholder gets $37.50 of base value, then on top of that they get $3 per year in distributions - how much value do you assign to 10 years of those distributions?
The value of Berry's assets could increase or decrease during the period between announcement and closing. You have quoted their revenue per month, but the key data is what did they do with the cash flow from operations during those months. Create value via drill bit? Pay down debt? Etc. So could be better off, or could be worse off. But I doubt they flushed their CFFO down the toilet, so I don't expect a price adjustment to be needed.
The most glaring omission from RRC data is non-op production. The RRC only knows who the operator is, so they can only tell you about production where Linn is operator. Your numbers don't even mean Linn owns 1% working interest in those leases (operators can be on a contract basis, although that is not the case here). So Linn could have anywhere from 1% to 100% working interest in these wells. Likely high, but we don't know. But we cannot know from this data how much non-op WI Linn owns in Texas. For instance, if they have a 40% non-op WI position with Concho or Pioneer out in the Permian, that might be going great and helping them grow their Permian production, but the RRC data can't tell you that.
Shell and Encana and Devon to some extent have walked away from huge acreage positions put together for the Mississippian Lime play. I doubt Linn bought the legacy BP Hugoton gas assets for Mississippian upside. More likely for cash flow stream at reasonable discount, plus work-over upside, plus upside to gas price rebound long-term. So my guess is not related.
What is the present value of the future stream of dividends that the BRY shareholders will get via their 1.25 LNCO shares? You have to add that to LNCO * 1.25 in order to get the consideration that a BRY share in receiving. BRY shareholders are not "losing" any value if LNCO * 1.25 is a few bucks less than the BRY share price.
nerdy_guy: how much value to you assign to 10 years of distributions at $3.08 per year that the institutional investor would be in line to receive?
what do you mean by "all available shares are shorted"? Certainly there is no limit on the number of shares that can be shorted, so I must be missing something.
Your statement is incorrect and misleading. Companies can pay out more cash than their earnings because they included non-cash expenses which for E&Ps is primarily DD&A but can also include hedge expenses depending on accounting treatment. So, no, it does not mean that Linn will have to borrow the difference between 18 cents of earnings and 72 cents of distributions. Each case requires its own analysis, and if you've done such analysis in this case, I am among a large group that would appreciate your sharing it. But just because the distribution is larger than the earnings, it does not mean the company will have to borrow the difference.
Very reasonable assumptions, and I would not be surprised. If they keep the distribution around the $2.90 to $3.08 range, a 10% yield is not crazy at all, and that has them around the levels you are describing.
What do you see the distribution doing during this 12-month period that you are describing? To me all valuation for this breed of company starts there.
lordofdoggtown: I at least want to understand your perspective on the options and the "max pain" comments you made a few days ago. I'm familiar with options and the mechanics, but please elaborate a bit on who was targeting "max pain," for whom, in what way, and all of that will help me start to get the picture. Thanks in advance.
I'm very long LINE, but with a current annual distribution of $2.90 and PRIOR guidance of $3.08 with the Berry assets, I am not expecting to see $35 for the next year. I assume we trade no better than a 10% yield while at $2.90 which gives me a $29 price, and if we get a bump to $3.08 the market might squeeze down to 9% yield for a reward, which gives me a $34.22. How do you get to anything higher? I would be delighted to be missing something.
No, that's not what Ruby is doing, and you should know better. RLP, you have at times added meaningful comments to the group discussion here, but lately you've come off as petulant and desperately seeking attention. Your comment above sounds just like something one of my pre-teen kids would say. Ruby has consistently tried to be sober and factual on these boards, and her point was clear. If we're going to change rules on history, those rules may change more than one variable, and while certain variables might appear weaker, there may be other variables that appear stronger. She's pointing out that the complete picture was not represented by your Wells Fargo excerpt. And any short or long should appreciate that.
Because they are getting more value than what they have today. Today they have a share of BRY worth $48.75. But they have the chance to get shares of LNCO worth $1.25 (after the 1.25 ratio) plus a future stream of dividends with a present value of way over $20 (based on work others have done here). Institutional investors will vote "yes" for that deal.