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Linn Energy: Clarity Is Starting To Emerge


  • A lot of changes have been happening with Linn, which makes it difficult to assess the quality of the business.
  • Thankfully, some clarity has now been provided, but the fact remains that there's a lot of opacity that still remains.
  • This creates risk, but the risk of a permanent loss in Linn, due to its zero-debt stance and positive cash flow, is slim.

Greater clarity is now emerging regarding the health of Linn Energy (LNGG). Although investors knew that the company's zero-debt and meaningful asset sales had created a positive structure for the once-bankrupt E&P, the fact that so many asset sales had been agreed upon left open the question of just how attractive the enterprise and its remaining assets could be considered. Now, with the release of its fourth quarter earnings results for last year, we have an enhanced (but still somewhat opaque) look into Linn and what kind of value the business offers to shareholders.

Some major updates

Last year, Linn managed to do quite well for itself. During the 12 months of 2017, management finished the divestiture of six properties in exchange for net proceeds to the business of $1.47 billion. So far this year, four properties are on track to being unloaded from Linn's books for further proceeds of $378 million. Some of this capital was used to pay off Linn's remaining post-bankruptcy debt, but as you can see in the image below, management has bought back a tremendous amount of stock.

*Taken from Linn Energy

Roughly 13 million shares in Linn have come off the market between 2017 and 2018. The total value here stands at $531 million. A sizable chunk of these purchases took place at a weighted-average price of $34.99, while the tendered shares were done at $48 per unit. In all, this has come out to around 14% of Linn's outstanding shares, but management isn't done yet. Currently, the firm has $194 million in spare buying capacity under its buyback program. At today's price of $38.85 per unit, management could buy back a further 4.99 million shares, reducing the firm's share count by another 5.5% from where the count stood prior to the buybacks taking place.

This article was written by

Daniel Jones profile picture

Daniel is an avid and active professional investor.

He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (25)

They took my 25%.
I have yet to read about any former stock holders complain about their dividend checks coming in from Line when times where good. Only complaints about how they held on to their stock too long. It’s hard to look in the mirror sometimes.
If the price of oil went back to $85 to $95. What do you believe the price of these companies would be? Would they go back to the pre crash prices, or would it take time to build back up?
Are you still long on MCEP???
Daniel Jones profile picture
It's hard to tell and is on a case-by-case basis. For MCEP, I'll be coming out with some articles on it soon that will cover something similar. I do own MCEP. It's now my second-largest holding and I'll likely buy more. :)
You should be Tarred and Feathered if you go anywhere near Line. Author recommended this pig all the way to BK and Beyond.
Daniel Jones profile picture
It's not nice to tell stories. I sold Linn a couple of months before they went bankrupt.
The story has not changed. You know how to spot The Tomato Cans and pitch them a Fine Caviar.
Chancer profile picture
I lost money on LNCO and no matter how good the story is I would not consider this management that damaged shareholders so much.

However, i consider all my stock investments as risky and speculative and I do not depend on any for retirement as they are separate from my retirement funds which are not in the markets.
"I lost money on LNCO and no matter how good the story is I would not consider this management that damaged shareholders so much."

I am not recommending LNGG to anyone, but keep in mind that the CEO Mark Ellis (who was CEO and Chairman of LINE) is not "running" the new Linn Energy Inc. He is no longer Chairman of the Board.

The old bondholders, who got 90% of the new LNGG stock when Linn emerged from BK, controls the new Board and they are making the strategic decisions. My understanding is that Ellis was kept on as CEO because he is an excellent operations guy (petroleum engineer by experience), even if he doesn't know much about finance. Ellis probably knows a lot about every single property that LNGG has an interest in, and that kind of operational experience was probably deemed to be too valuable to let go.

It appears to me that LNGG is liquidating itself, in order for the bondholders to eventually cash out their LNGG stock.
Queen Anne Investor profile picture
My understanding is that the bond holders converted their bonds to equity and at the current price of $39, they have done better than if they held onto their bonds. Of course the old equity holders got wiped out and the bond holders who sold their bonds at distressed levels got a huge hair cut. But correct me if I am wrong, if you were patient and exercised your rights and converted your bonds into stock then you are doing fine now. Perhaps there are bond holders who can weigh in here. Unfortunately I am unable to dig the exact values because the distressed debt market is not so transparent (or perhaps I don't know where to look).

It depends on when the bondholders bought their bonds. It they bought them soon after they were issued (back in 2011 or so) when they traded slightly above par value, they are still not made whole. But anyone who bought the bonds when the price of oil was at $50 is probably close to break even now if they held on to their LNGG stock.

For a short time, in early 2016 Linn Energy bonds were trading at about $0.03 on the dollar (plus accrued interest of another $0.02) so those people have made a lot of money (but trading volume was low). January 2016 were very dark days for the entire bond market, especially for energy issues.

When the LNGG stock was first issued about a year ago, it was trading in the mid 20's, because the price of oil was quite a bit lower than it is today, and LNGG is now trading in the high $30's. But when the BK settlement was agreed to by the judge, the price of oil was a lot lower, and it was estimated that bondholders would only recover about $0.25 - $0.40 on the dollar, although those things are hard to predict, since they depend on future stock market prices of the new company that emerges from BK.
"it's an E&P that carries little risk so long as energy prices don't tank"

That was true of Line Energy in 2014 also. But energy prices did tank and we know what happened next.
Daniel Jones profile picture
Except that now there's no debt. :)
Queen Anne Investor profile picture
How do you know he put all his eggs in one basket? Perhaps his IRA was $20 million.
"Perhaps his IRA was $20 million."

If so, he would not be complaining. There were a lot retired people chasing yield. They though they were genius investors for finding such a high yielding stock, and didn't realize that with high yield comes high risk.
I would still complain, it was a bad deal in the end. A professional analyst was touting it right up till he changed his mind and said it was so low, no sense in selling it. Lost some money on this one, but I would complain if it was 10 Million or a few thousand. It was a bad deal in the end, and only the investors were hurt. Now there back with a new set of investors. Good luck to them.
"It was a bad deal in the end, and only the investors were hurt"

As I said previously, I have examined the SEC Form 4's issued by Linn Energy as to stock holdings of management, and from everything I can tell the CEO (Ellis) held onto 750,000 shares all the way into bankruptcy (except for shares given to charity or his family trust). That represented stock granted to him over the previous years that was about 80% of his pay, and was once worth about $30 million.

Also, I am sure that Linn Energy had to let a lot of employees go, at the same time other Energy companies in Houston or elsewhere were letting employees go, and a lot of employees suffered also. Some of those were executive management.

I don't expect anyone to feel sorry for Ellis, but just getting the facts straight.

There have been 134 North American oil and gas producers that have filed for bankruptcy since the beginning of 2015 until Oct 2017. Those are just E&P companies. If one were to include oil field manufacturing, service, and supply companies, the number is much higher. http://bit.ly/1IT73Pd~/media/files/energy_b...

The bankruptcy lawyers have made a fortune from this misery.
This bunch of so called management has no idea of what clarity means! The first Linn Energy was responsible for my 30 year IRA losing $850,000 because I believed all the bullshit they put out and never let anybody know what was truely going on until it was too late. They are a sorry bunch, watch out!!!!!
GoingGreek profile picture
Addis -$850k...IRA...Linn Energy? What did you learn in school? Never put all your eggs in one basket!
Scum bag Management will swindle you out of your money.
Intruder59 profile picture
Linn Energy will there be a dividend in 2018 ? If so, when ? how high?
I doubt that LNGG will be paying a dividend any time soon. Partnerships (like LINE) are pretty much set up to pay distributions to partners in a tax efficient manner, but LNGG is now organized as a regular corporation.
Daniel Jones profile picture
It's possible but I'd be surprised.
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