Seeking Alpha


Send Message
View as an RSS Feed
View Bryce_in_TX's Comments BY TICKER:
Latest  |  Highest rated
  • Linn Energy Needs A Deal Announcement To Move The Value Needle [View article]

    Total liabilities decreased by $86 million, so maybe that is what you are looking at. Current liabilities are going to fluctuate up and down from quarter to quarter.

    What I was focused on was long term debt, nothing else. You did notice that it increased as I stated, and that more was borrowed during the quarter than was paid on debt, per the cash flow statement?

    Look at financing activities on the cash flow statement: $280,287 million was paid on debt, but $395 million was borrowed.

    Go back to 2006 and make a spread sheet of cash flow from operating activities, cash provided or used in investing activities, proceeds from debt and equity, and payments on debt, as well as distributions paid. It isn't a pretty picture.

    Total cash flow from operating activities: $4.544 billion
    Total cash used (spent) in investing activities: $14.483 billion

    Proceeds from debt and equity: $30.157 billion
    Payment on Debt : $15.969 billion

    Distributions paid: $3.854 billion

    Long term debt has steadily climbed, never being paid down. As rlp2451 pointed out, assets from the end of 2014 to March 31, 2015 decreased, as did equity. I don't see how any of this is "improvement".

    The current FMV of LINE's assets are worth less than its long term debt. LINE isn't done writing assets down from impairments yet. LINE depends too much on external funding, mostly debt, to fund its operations, and doesn't generate enough cash internally.
    Jun 19, 2015. 01:18 PM | 2 Likes Like |Link to Comment
  • Linn Energy: The Earnings Reporter Edition [View article]

    "How many companies have you been chief Executive Officer? "

    If that is what it takes to be able to tell a good investment from a highly risky one then most of us are in trouble. However, I have done the accounting for two public companies, including preparing the financial statements, as well as for several private ones.

    I didn't say that all debt was bad, did I? LINE has way too much of it, so much so that its assets are currently worth less than its long term debt. That is healthy to you, seriously?

    Ahhh, the hedges. The hedges, rather derivatives', purpose is to help insure stable, non-volatile cash flows, not profit.

    "At March 31, 2015, the Company’s hedge book had an
    estimated net positive mark-to-market value of approximately 2.1 billion."

    Since the derivatives are being used as hedges, there is another side to the derivative transactions besides the current value of the derivatives. The derivatives are being used to hedge the price of oil and gas for a specified amount of production, so that when that production is sold LINE receives a certain amount of cash from the combination of the derivatives settled during the period plus the sale of the oil and gas inventory. When the price of energy goes down, like oil has in the last 9 months, the fair market value of the unsettled derivative used to hedge the oil production goes up, generally in about the same value, so that to the degree the derivative is effective as a hedge, there is no material gain or loss on the sale of the oil production.

    So if the fair market value of the hedge book is $2.1 billion, then the fair market value of the hedged production has declined by about that amount, also.

    LINE used to report adjusted GAAP Net Income or Loss in its 10-Qs and 10-Ks but no longer does. They are less transparent now. That number would have given you a better idea of how they did, earnings wise, for an accounting period. The GAAP Net Income is distorted. Do you know why?

    They reported total gains from derivative transactions of $425 million for the first quarter, but a good portion of that are changes in the FMV of unsettled derivatives contracts, or unrealized gains. The changes in FMV of unsettled derivative contracts (unrealized gains) need to be taken out of the gains reported for the quarter to get actual realized gains for the quarter. My guess is that actual revenue for the quarter was around $700 million, rather than $917 million.
    Jun 16, 2015. 09:40 PM | 2 Likes Like |Link to Comment
  • Linn Energy: The Earnings Reporter Edition [View article]
    Keep drinking the Kool-Aid, Kirby.
    Jun 16, 2015. 05:46 PM | 1 Like Like |Link to Comment
  • Linn Energy: The Earnings Reporter Edition [View article]
    I don't understand what you are saying. Yes, I recall LINE being called Ponzi like, but I never said that.
    Jun 16, 2015. 11:53 AM | 1 Like Like |Link to Comment
  • Linn Energy: The Earnings Reporter Edition [View article]

    Ponzi allegations?
    Jun 16, 2015. 11:14 AM | 1 Like Like |Link to Comment
  • Linn Energy: The Earnings Reporter Edition [View article]
    IMO, the emphasis on earnings and maintaining healthy financial ratios will provide the greatest long-term unit holder value and price per unit. In that regard, it's no different than a C-corp.

    I think what LINE is doing is taking revenue earned that should go toward paying for assets acquired, and paying that out in distributions instead. In other words, it is taking revenue generated from debt financed acquisitions and paying that out in distributions. Indirectly, distributions, the majority of them, are being financed with debt and equity, not from earnings.

    Their "credit card" is maxed out. Time to be fiscally responsible and pay a lot off of "the card".

    LINE management is experienced all right. Experienced in knowing how to maximize bilking the company to maximize executive compensation.
    Jun 16, 2015. 02:37 AM | 2 Likes Like |Link to Comment
  • Linn Energy: The Earnings Reporter Edition [View article]
    "Relative Unitholder Return. Historically, the Committee has used total unitholder return relative to a group of peers as a performance measure in the EICP. The Committee removed total unitholder return as a performance measure in the EICP with our implementation of performance units, as described beginning on page 29. However, for 2014 EICP awards, the Committee took total unitholder return into account since performance units awarded in January 2014 will not become eligible for payment until early 2016. The Company ranked in the bottom quartile in total unitholder return in 2014 compared to both our compensation benchmarking peer group and the upstream master limited partnership/index peers described earlier over the last one and three year periods. " (See pay27 in link)

    LINE's compensation for its executives is based primarily on maintaining or increasing the distribution per unit, and on increasing production and the amount of total cash costs. There is no incentive on maximizing its Net Income or in paying down debt. That's why its cash flow numbers look so horrific. Notice that LINE took out total unitholder return as a performance metric when LINE did so poorly on this metric (for the last one and three years no less). They change the performance metrics at will to make them look better than they are really doing. They did so with DCF, and now with executive compensation.

    Primarily, they are about maximizing distributions at the expense of other sound business practices, such as paying down debt and maximizing earnings. I worked for a partnership, a small architectural/engineering firm with annual revenues of about $15 million, who followed similar goals of bilking the partnership of all its cash through executive and top level employee compensation without consideration of how that bilking would impact the long term health of the company. It went bankrupt about two or three years after I left, when the next recession hit. I left because the bilking didn't look healthy to me, just as LINE's emphasis of the distributions doesn't look healthy to me. IMO, the emphasis should be on earnings and maintaining healthy financial ratios.
    Jun 16, 2015. 02:14 AM | 2 Likes Like |Link to Comment
  • Linn Energy: The Earnings Reporter Edition [View article]
    Correction: The only way to pay for its assets is to cut the distribution and/or sell assets or for energy prices to recover to the $100/barrel and $4.50 to $5/mcf range. To continue the current distribution it needs more acquisitions. Its earnings have never been anywhere near sufficient, thus it has gone the acquisition route to maintain the distributions.

    I would not acquire the company (too much debt), but rather try and buy individual assets and let LINE deal with the debt.
    Jun 15, 2015. 08:28 PM | 2 Likes Like |Link to Comment
  • Linn Energy: The Earnings Reporter Edition [View article]
    LINE's reserve assets are declining in value ($12.654 B 1st Qtr. 2015 vs $13.201 at end of 2014). AT current energy prices, its assets are worth less than its long term debt of $10.4 B.

    LINE's free cash flow has always been negative, and its debt load has increased every year, meaning LINE has NEVER paid down its debt balance. Here are the numbers:

    From 2005 through 2014:

    Cash flow from operating activities $4.544 Billion
    Cash used in investing activities -$14.483 Billion

    Proceeds from Equity and Debt $30.147 Billion
    Repayments on Debt -$15.969 Billion

    Distributions paid to Members -$3.854 Billion

    To pay off $10.3 Billion in debt over 25 years, at 5.5%, you need $760 million per year in payments. LINE has only generated $690 million, Total, in excess of CFO over distributions over ten years, or $69 million per year average. Its "earnings" have always been anemic. The only way to pay for its assets is to sell assets or for energy prices to recover to the $100/barrel and $4.50 to $5.00/mcf range.

    Bottom Line: LINE needs to apply any additional revenue from recovery in energy prices to its debt load. This is a highly risky investment and the yield reflects that.

    It wouldn't surprise me if LINE is in violation of some of its debt covenants come redetermination of its borrowing base in October.

    Disclosure: no investment of any kind in LINE or LNCO
    Jun 15, 2015. 08:01 PM | 2 Likes Like |Link to Comment
  • Why I Sold Kinder Morgan, And Bought Airgas Instead [View article]
    Looks like the pipelines are depreciated over 22 years for tax purposes. I don't see how that figures into the P/E ratio calculation. (See asset class 46 "Pipeline Transportation".)
    Jun 12, 2015. 11:36 PM | 1 Like Like |Link to Comment
  • Why I Sold Kinder Morgan, And Bought Airgas Instead [View article]
    I wasn't aware that tax depreciation and book (GAAP) depreciation were the same for KMI. They are two different systems, supposedly, one used for reporting to the fed government, and in many cases it is accelerated and has nothing to do with the actual economic life of an asset. The other, GAAP, is supposed to expense the asset over its estimated useful life. GAAP is what the "earnings" in the P/E ratio is based upon. That's why I was asking the question.
    Jun 12, 2015. 11:13 PM | 2 Likes Like |Link to Comment
  • Why I Sold Kinder Morgan, And Bought Airgas Instead [View article]

    I don't follow what you are saying. Perhaps you can expound. I am scratching my head to try and understand what you said.

    From what little I have read as to why FERC controls the accounting, it was to try and make utilities and pipeline companies more honest in the amount of revenue, expense, and net income they actually achieve/incur, and to prevent consumers from being ripped off from overpricing. Also, from the little that I have researched, it appears that the average pipeline has remained in service a lot longer than 25 or 35 years. That means, for example, that if KMI puts in a new pipeline and it is depreciated over 35 years, but is still in service 60 years from now, that expense will have been overstated. Whether or not it is material to an accounting period is determined by the total approximate dollar amount of overstatement compared to the net income for the period.

    In short, depreciation is an estimate, not a reality, and it appears to me that FERC is overly conservative in their rules as it pertains to pipelines. Depletion is also an estimate, and appears for the most part, that it is also overstated by energy companies simply because of technological developments over decades, which causes GAAP impairments to distort economic reality even more.

    Either one, or both of those items has the potential to make the income statement less meaningful. Combine that with the change in FMV of right of ways and it looks like the income statement materially understates net income. The DCF that KMI calculates may be overstated as well. Maybe economic net income is somewhere in between. I'll go with the cash flow statement, thank you.

    I hope your investment with ARG works out well for you.
    Jun 11, 2015. 11:44 PM | Likes Like |Link to Comment
  • Why I Sold Kinder Morgan, And Bought Airgas Instead [View article]

    "I agree with respect to the primacy of the CF statement, but only to the extent that my original point about Maintenance Cap Ex is accurate. If not, then the earnings statement becomes, at least in theory, much more relevant."

    I suspect that the deprecation time length, as established by FERC, is conservative, meaning not that accurate. I don't know that for a fact, just what I suspect. With proper maintenance pipelines probably last much longer.

    Then there are impairments which, under GAAP, reduce the value of assets. But, should those assets increase in value following the write down, GAAP doesn't allow them to be increased or written up to Fair Value. This causes a distortion of economic reality, in that it distorts economic Net Income or Loss, as well as distorts the true value of the assets. I addressed this in my previous post. Per the textbook I referenced, "Financial Statement Analysis", it states on page 212 of edition 9 of the book:
    "The fair value of the asset, then, becomes the new cost and is depreciated over its remaining useful life. It is not written up if expected cash flows subsequently improve. From our analysis perspective, two distortions arise from asset impairment: (1) Conservative biases distort long-term asset valuation because assets are written down but not written up. (2) Large transitory effects from recognizing asset impairments distort net income."

    Then you may have the change in value (increase) of the pipeline assets over time due to an increase in value of right of ways. That increase in value is never reflected under GAAP, since GAAP uses historical cost as the basis of measure of value.

    So, there are some real distortions created by GAAP, and their materiality determines whether the Income Statement can be relied upon. I conclude it cannot be.

    With the cash flow statement, there are no estimates, such as depreciation or depletion or impairments to distort the numbers, and all cash received or paid out for the period is included somewhere on the statement. That is why I consider it more reliable and meaningful.

    Goodwill is controversial, IMO. I didn't consider goodwill in looking at KMI's ratio of debt to assets. Goodwill can be an indicator of earning power, that is, of excess earnings over normal earnings, meaning the reason an amount was paid for acquisition of a company over and above identifiable assets was due to some perceived additional value the company possessed that is currently not defined by accounting standards. Such value can refer to an ability to attract and retain customers or to qualities inherent in business activities such as organization, efficiency, and effectiveness.
    Jun 11, 2015. 08:13 PM | 2 Likes Like |Link to Comment
  • Why I Sold Kinder Morgan, And Bought Airgas Instead [View article]

    "This maybe an over simplification but in my opinion, the depreciation tax benefits are distorting the P/E ratios. "

    What does tax depreciation have to do with the P/E ratio?
    Jun 11, 2015. 02:14 AM | 2 Likes Like |Link to Comment
  • Why I Sold Kinder Morgan, And Bought Airgas Instead [View article]

    "The midstream model works much like the REIT model."

    If the FMV of pipelines increased annually, like real estate does I might agree, but that doesn't occur, does it? Doesn't the value of pipelines depreciate over time?
    Jun 11, 2015. 02:12 AM | 1 Like Like |Link to Comment