Unbelievable. You don't know anything about their hedges, do you? This company is done. They've drawn up what was remaining of their credit facilities in order to pay themselves before the bank pulled it. This means they can't be cash flow negative in the current quarter (which they will be) or they're done. Simple math. Companies like Linn need to go under so oil can bottom. Do not buy, do not hope. Game over.
10% drop in global production???! That's crazy. Look at the numbers to realize how crazy that is.
1. A 2% drop in global production would get the job done. Oil prices would spike pretty darned high if that happened -- and even that's not going to happen.
2. Global crude demand should catch up to supply in 2017, just from global growth in demand, which is trending low right now.
3. LINE will not be around to see the recovery in crude prices. LINE won't make it out of 2016. Hedges roll off and cash flow falls off a cliff in 2017.
"In the first three quarters of 2015 LINN has over a billion dollars in operating cash flow, which will continue in 2016 due to the hedges"
You are missing a few things.
1) For 2016, oil is hedged 70%, compared to 90% for 2015, so for every dollar oil is below $90 cash decreases from 2015 by $1M per quarter per dollar. So at $40 crude, cash flow for 2016 will be $200M less than 2015. Just from having less hedged oil.
2) NG is hedged at 100% for 2016, sure, but at 60 cents less per mcf than 2015 -- which is roughly $140M less in cash flow for 2016 than 2015. This happens no matter what NG does in 2016.
3) 2017 is a looming disaster. Most crude hedges roll off and unless you think WTI gets back to $90 by the end of 2016, cash flow will be several hundred million less than 2016 and putting on hedges now is much more expensive than it was a year ago.
4) Linn's crude production is flat at ~$570MM capex. Debt service is ~$550MM.
So at $40 WTI, cash flow is reduced by $200MM + $140MM = $340MM for 2016 compared to 2015.
At $50 WTI, cash flow is reduced by $160MM + $140MM = $300MM.
They are already technically in default according to credit agencies as a result of the distressed exchange and the second lien notes they issued had a 12% coupon. Bankruptcy is looming by the end of 2016 or sooner. Chances are they will enter bk sooner than that to save the company from liquidation, but unitholders will get nothing.