A Deep Look at LINN Energy's Fourth-Quarter Results

Looking closer at some of the numbers that matter from the fourth-quarter and full-year results for LINN Energy and LinnCo.

Feb 27, 2014 at 1:00PM

Linn Energy Llc Linnco Llc

Photo credit: LINN Energy.

LINN Energy (NASDAQ:LINE) and LinnCo (NASDAQ:LNCO) reported strong results before the market opened today. Distributable cash flow was stronger than expected, while production exceeded the lower end of the company's guidance range despite the impact from severe winter weather. Let's take a deeper look at the most important numbers LINN Energy reported for this past quarter.

The numbers that matter
LINN Energy's oil and gas production averaged 889 million cubic feet of natural gas equivalent per day, or MMcfe/d, in the fourth quarter. However, that number included 44 MMcfe/d from the LinnCo-led deal to buy Berry Petroleum, which closed near the end of the quarter. Backing that out, the company produced an average of 845 MMcfe/d, which was at the lower end of the company's guidance range of 840-860 MMcfe/d. Persistently severe winter weather affected production during the quarter, which makes even hitting the lower end of the guidance a success.

Another important number worth watching was Berry Petroleum's production in the fourth quarter. Before closing its deal with LinnCo, Berry Petroleum was guiding for fourth-quarter production of 44,000 barrels of oil equivalent per day, or BOE/d. LINN Energy noted that Berry Petroleum's fourth-quarter production was actually slightly higher at 45,000 BOE/d. That growth also represented a 9% jump from the prior quarter.

Finally, and most impressively, was the $202 million that LINN Energy put up for distributable cash flow. What made that impressive was that the company only distributed $170.5 million to unit holders, which left an excess of $31.5 million. LINN Energy had guided for cash flow in excess of its distribution of 5%-10% on the quarter, which it easily exceeded. For a company that struggled to cover its distribution earlier in 2013, this is a welcome situation.

One area to watch
Production guidance for 2014 looks a little light. The company expects first-quarter production to average between 1,070 and 1,100 MMcfe/d. However, for the full-year the company doesn't see much if any growth as the guidance range is 1,070 to 1,140 MMcfe/d. This guidance range does include ethane rejection of 22 MMcfe/d.

 Permian

Photo credit: LINN Energy.

This is something that needs to be watched due to the fact that LINN Energy also announced a capital budget of $1.55 billion for oil and gas projects. That's 11% less than the combined companies spent in 2013, and it would appear that most of that money would be used to offset production declines, not grow production.

A quarter of that money will be spent in the Permian Basin, which holds both promise and uncertainty at the moment. Part of the promise is in the fact that the company believes its acreage has horizontal potential in the Wolfcamp shale. The company is participating with Diamondback Energy (NASDAQ:FANG) on a nonoperated well. We should expect the results of the Diamondback Energy well in the first quarter.

In addition, LINN Energy is looking to drill 10 operated wells in the second quarter, targeting the Wolfcamp. Those wells add uncertainty and risk. Adding to the uncertainty is the fact that the company announced strategic alternatives for this Midland Basin portion of its Permian Basin assets. The company could sell, trade, or partner on these assets. While there appears to be real value here, as Diamondback Energy's recent purchases of acreage in the area suggest, the extent of that value and how LINN Energy intends to develop it remains to be seen. Still, there is exciting upside potential, which could have a significant positive impact of 2014 guidance. 

Investor takeaway
Overall, LINN Energy delivered a solid quarter. Production was solid and cash flow was good, leaving LINN Energy's distribution and LinnCo's dividend both looking rock solid.

Looking for more great income stocks?

One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

 

Matt DiLallo owns shares of Linn Co, LLC and Linn Energy, LLC. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers