LINN Energy Discloses New, Critical Information

In footnote #3 on page 257 of LINN Energy's (LINE, LNCO) Form S-4/A released this morning (June 4, 2013) is a new, critical disclosure.  We highlight it below:


LINN Energy Discloses New, Critical Information - linn 1


We now know exactly how much LINN's controversial put option accounting method has contributed to "Distributable Cash Flow (DCF)" for prior periods.  In the most recent quarter (1Q13), 29% of DCF was generated by LINN's unique put options accounting method, which we believe is inappropriate and misleading, as described ad nauseum in our prior research - see slides 18 - 29).  


Importantly, the % of DCF generated from this accounting method has been increasing.  In 1Q12 it was 16% of DCF; for the three quarters combined 2Q12 - 4Q12 it was 24% of DCF; and in 1Q13 it was 29% of DCF.


Excluding premiums paid for put options settled in 1Q13, DCF/unit was only $0.46, for a coverage ratio of 0.63.  And that's saying nothing of the massively understated "maintenance CapEx" figure (which there is also some new disclosures on in today's S-4/A)...


LINN Energy Discloses New, Critical Information - linn 3


We had previously estimated that the figure would be ~$120MM per year, or $30MM per quarter, for 2013 and beyond.  It appears that we were too conservative with that estimate.  If we annualize the 1Q13 number of $43MM, that's $172MM in 2013 and 25% of guided DCF ($681MM).




As a reminder, this is what LINN's CFO Kolja Rockov said on this very topic when I questioned about it at the OGIS NYC break out session on 4/15/2013:


Kaiser: “On the 2013 hedge book, what’s the cash cost of the put options that expire in 2013?”


Rockov: “There is none.  Every put that we’ve ever bought we paid for with cash up front.”


Kaiser: “Yeah, what did that cost you, for the ones that will expire in 2013.”


Rockov: “Oh.  I don’t know exactly.  It’s probably $100 million-ish a year, if I had to guess.”


Kaiser: “$100 million?”


Rockov: “Yeah.  I mean, because they weren’t all bought in one time period, they were bought over the last several years, so I’d have to go back and look.  I’m not…  But somewhere in that magnitude.”


Compared to the new disclosure, his "guess" appears a little light...


Kevin Kaiser

Senior Analyst 

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more