Update: Earnings: Linn Energy Is On Track To Move Higher

Aug. 8.14 | About: Linn Energy, (LINEQ)


The company announced its earnings yesterday, and recorded strong growth in sales (98%) and average daily production (2.4%).

The distribution coverage and the growth in sales have confirmed our opinion that the company will be able to grow its cash flows.

Our belief has also been confirmed regarding the shift in its assets portfolio, as the addition of mature assets will bring more stability to cash flows and revenues.

Linn Energy (LINE) announced second-quarter results on August 07 - we have been optimistic about the prospects of the company due to the change in the strategy. One of the key elements for success has been the efficient execution of the strategy where the company is trying to shift to mature assets. For the second quarter, Linn reported an increase of 2.4% in average daily production and almost 100% increase in sales of oil, natural gas and NGLs - sales for the second quarter went from $488 million in 2013 to $968 million.

One of the key figures to note in the earnings announcement is the cash flows and the distributions coverage. Net cash from operating activities was $481 million, up from $227 million for the same quarter last year. Distributions for the quarter were $241 million, compared to $170 million for the same period last year. Most importantly, Linn Energy was able to realize a net cash surplus of $32 million after distributions, compared to a shortfall of $18 for the second quarter of last year. Furthermore, the net loss of $0.64 per unit included non-cash loss of unsettled commodity derivatives.

These results are in line with our expectations, and especially, the cash flows situation is playing out as we expected. Further deals for mature assets will allow the company to have a better portfolio of slowly declining assets and give its revenues and cash flows some stability. Consistently growing cash flows should allow the company to grow its distributions going forward. Linn Energy will be able to fully cover its distributions with the cash generated from operations for the third quarter and the full year - the company will generate excess cash after meeting its distribution requirements and discretionary expenses. Furthermore, there will be more deals to add mature assets to the balance sheet and the company will be trying to shift less-mature assets, which will give its assets portfolio a better balance. We believe Linn Energy will continue to progress well and prove to be a good investment.

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