The actual earnings release data from Linn Energy LLC (LINE) and LinnCo LLC (LNCO) did not provide much in the way of new news, but the earnings conference call and Q&A provided more than a few interesting nuggets of information. While some news headlines called the Linn results "Strong", it appears the market reaction is more inline with the Barron's report that Howard Weil analyst David Amoss downgraded Linn Energy to Sector Outperform from Focus Stock, but ignoring the $36 target price for LINE.
During the Q&A, a Wells Fargo analyst asked the Linn management team whether they were surprised by today's market reaction to the earnings news, since LINE and LNCO were down about 5% to start the day. Alpine/Leon Cooperman, the 2nd largest institutional holder, expressed dismay to how the market has reacted and indicated their intent to add to their position.
One bigger piece of news from the earnings release was the announcement that Linn is looking for "Strategic Alternatives" for the company's 55,000 acre, 17MBoe/day production Midland Basin position. By alternatives they mean to sell or trade the asset. The goal seems to be to raise capital through the sale, unload a high decline rate asset, and reinvest into assets with lower production decline rates.
A second major announcement point was the guidance of a capital spending budget of $1.6 billion, down from the combined $1.8 billion spent by Linn and Berry Petroleum in 2013. The $200MM was described as a benefit of the Barry acquisition and "accretive".
Linn is not hedged for natural gas liquids prices. The higher NGL values so far of 2014 should give a boost to at least the Q1 numbers.
For 2014, Linn will focus production efforts on oil over natural gas, with "100% of oil and natural gas capital focused on oily / liquids-rich projects." The effort is aimed at shifting the company's production decline rate to a lower value, reducing the capital spending necessary just to tread water. A 3% increase in organic production was forecast.
For 2013, all of the LNCO dividend was classified as return of capital. For 2014, most if not all of the dividends from LNCO are expected to be reported as qualified dividends.
The chances or expectations of a distribution rate increase were not discussed. Management comments were more on the order of that the current distribution rate is safe. However, in the Supplemental Guidance deck, the 2014 distribution is held flat.
Full-year distributable cash flow data is now up on MLPData. Due to SEC review, LINN essentially has released a DCF without calling it a DCF, which somehow improves disclosure to investors.