Update: Linn Energy Earnings - A Solid Quarter Overall

| About: Linn Energy, (LINEQ)


Linn Energy reports its Q2 2014 results.

Production came above guidance while DCF per unit sees a major improvement.

As I noted in a prior article, the company has made several asset swaps with an eye towards improving its cash flow and reducing capex.

These results confirm my bullish stance on the stock.

Linn Energy (LINE), (LNCO) has had a very busy few couple of weeks. As I noted in a recent article, the company has been swapping out capital intensive "growth" assets in exchange for mature, cash flow rich current production. These moves seem to have paid off in spades. Q2 2014 saw the company post major improvements in several key metrics, most notably DCF.

For the quarter, Linn Energy saw its production increase 2.4% Q/Q to 1,131 MMCFE/D, thanks to increased production from California and the Hugoton Basin. However, arguably more important, Linn Energy saw a major turnaround in DCF, posting an excess of net cash of $32 million, compared to a net shortfall of $18 million last year and a $3 million shortfall last quarter. In other words, Linn Energy was able to fully cover its distribution during Q2 with a coverage ratio of 1.13x.

Looking forward into the second half of 2014, Linn Energy guidance is fairly strong. Due to the positive impact of its recent transactions, the company expects to generated excess DCF of $63 million for Q3 and Q4 2014. Do note that this guidance includes partial production coming from the Exxon, Devon, and Pioneer asset swaps and results from the Mid-Continent assets which the company plans to sell. Doing some math, this would represent a coverage ratio of 1.10x for FY 2014, more than enough room for a potential distribution increase. Overall, an impressive quarter for Linn Energy.

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