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Linn Energy's (NASDAQ:LINE) annual report bodes well for 2013. Linn Energy is a great long-term company that I have held since 2011. Since then it has grown significantly and has increased its dividend consistently. Its recently announced merger will, in the long run, be a wise move. Linn Energy is a great long-term play and should be in every value investor's portfolio.

Natural gas annual average daily production 2010 through 2012:

  • 2012 = 349 MMcf/d
  • 2011 = 175 MMcf/d
  • 2010 = 137 MMcf/d

Oil annual average daily production 2010 through 2012:

  • 2012 = 29.2 MBbls/d
  • 2011 = 21.5 MBbls/d
  • 2010 = 13.1 MBbls/d

NGL annual average daily production 2010 through 2012:

  • 2012 = 24.5 MBbls/d
  • 2011 = 10.8 MBbls/d
  • 2010 = 8.3 MBbls/d

Estimated proven developed reserves:

  • Natural gas = 1.661 Tcf
  • Oil = 131 MMBbls
  • NGL = 113 MMBbls

Estimated proven undeveloped reserves:

  • Natural gas = 910 Bcf
  • Oil = 60 MMBbls
  • NGL = 66 MMBbls

Oil, natural gas, and NGL sales:

  • 2012 = $1.601 billion
  • 2011 = $1.162 billion
  • 2010 = $690 million

Net cash provided by operating activities:

  • 2012 = $350 million
  • 2011 = $518 million
  • 2010 = $270 million

Net cash used by investing activities:

  • 2012 = $3.684 billion
  • 2011 = $2.130 billion
  • 2010 = $1.581 billion

Net cash provided by financing activities:

  • 2012 = $3.334 billion
  • 2011 = $1.376 billion
  • 2010 = $1.524 billion

Net Income (loss):

  • 2012 = ($386) million
  • 2011 = $438 million
  • 2010 = ($114) million

Adjusted EBITDA:

  • 2012 = $1.402 billion
  • 2011 = $997 million
  • 2010 = $732 million

Proceeds from credit facility:

  • 2012 = $3.640 billion
  • 2011 = $1.790 billion
  • 2010 = $1.050 billion

Credit Facility (unused):

  • 2012 = $1.180 billion
  • 2011 = $940 million

Proceeds from senior notes:

  • 2012 = $1.799 billion
  • 2011 = $744 million
  • 2010 = $2.250 billion

Net senior notes due dates:

  • 2017 = $39 million
  • 2018 = $13 million
  • May, 2019 = $745 million
  • November, 2019 = $1.799 billion
  • 2020 = $1.274 billion
  • 2021 = $985 million

Hedging:

  • Hedged 100% for 4-6 years
  • Linn Energy uses approximately 70% swaps and 30% puts

Merger:

Linn Energy is merging with Berry Petroleum Company (NYSE:BRY). Linn Energy is buying all of Berry Petroleum's outstanding shares. In return Berry's shareholders will receive 1.25 shares of LinnCo (NASDAQ:LNCO) per share of Berry Petroleum. The deal is expected to close near the end of Q2 2013.

Proven reserves:

  • Natural gas before merger: approximately 2.571 trillion cubic feet equivalent
  • Oil and NGL before merger: approximately 2.225 trillion cubic feet equivalent
  • Natural gas after merger: approximately 2.996 trillion cubic feet equivalent
  • Oil and NGL after merger: approximately 3.450 trillion cubic feet equivalent

Q1 2013:

In Q1 2012 Linn Energy's net cash provided by operating activities was reported at $35.513 million. In Q1 2013 this increased to $334.594 million.

For Q1 2012 adjusted EBITDA was $302.139 million. In Q1 2013 there was an increase of $53.917 million to $356.056 million.

Dividend:

In the third quarter Linn Energy will start paying its dividend monthly instead of quarterly. It will also be raising the dividend from $2.90 annually to $3.08 annually.

Analysis:(click to enlarge)

Due to major acquisitions from companies like BP, Linn Energy has increased its natural gas, oil and NGL daily production by over double in just two years. For Linn Energy's substantial growth to continue it plans to acquire more oil, NGL and natural gas properties. However, Linn Energy's estimated proven reserves are approximately 65% developed leaving room for in-house growth too.

Linn Energy's senior notes are long term and the first amount, of only $39 million, is due in 2017. After 2018 Linn Energy's note payments increase drastically. This provides Linn Energy with time to save the capital to pay off the debt in conjunction with finding financing to fund debt payments and acquisitions. It also allows Linn Energy to move full steam ahead in its acquisitions, joint ventures and mergers.

Linn Energy's merger with Berry Petroleum Company has only upside in the long term for Linn Energy. It drastically increases oil, NGL and natural gas proven reserves. However, short term it is diluting shares, which has and will affect the short-term price of the stock. I believe that the value it is gaining will, in the long run, offset this dilution. Because of this merger Linn Energy is increasing its dividend to $3.08 and is changing it from quarterly to monthly. This increase and change in procedure shows the company's confidence in its long-term growth and earnings.

I am confident that Linn Energy is a great long-term value investment. However, before investing one must keep in mind that Linn Energy is not a short-term play and that it is a forward-looking company. I expect to see constant growth; not blowout earnings. Therefore, Linn Energy is an investment for the future, not a short-term trade.

Source: Linn Energy's Annual Report Bodes Well For 2013

Additional disclosure: While I express my opinion in this article, only you can determine if a specific stock is right for your portfolio. You should always do your own research before buying or selling any stock.