Source: LINN Energy LLC.

The dramatic drop in the price of oil has taken a big toll on LINN Energy LLC (OTC:LINEQ) and LinnCo LLC (NASDAQ: LNCO). That was quite evident when the pair reported fourth-quarter results before the opening bell on Thursday. While LINN Energy met its guidance for both production and distribution coverage, it took a very interesting path to get there. The company also dramatically revised its outlook for the year ahead, taking another chunk out of its capital spending plan as it digs in for what looks to be a very tough year for the energy industry. Here's a closer look at the report as well as what investors can expect going forward.

Drilling down into the numbers
LINN Energy reported production of 1,358 MMcfe/d during the quarter, which was toward the lower end of the company's guidance range of 1,350 MMcfe/d to 1,405 MMcfe/d. The company did a lot of shuffling around of assets during the quarter as it closed the sale of its Granite Wash assets and completed its second trade with ExxonMobil (NYSE:XOM) during the quarter. The timing of these transactions is largely responsible for the company's average production coming in toward the lower end of its guidance range.

The company was pretty spot-on with its guidance for distributable cash flow, which came in at $148 million. However, it paid its unit holders $241 million in distributions during the quarter, so its shortfall was roughly $93 million. That's actually a million dollars better than the company's guidance of $94 million shortfall. That said, this is nothing to celebrate, as the company did some rather creative accounting to get there.

For example, the company's original guidance included a $45 million cash payment as a result of the company's sales and trades, but it ended up receiving $12 million as the result of when the transactions actually closed. On top of that, the company had a $92 million working capital adjustment, which was added to distributable cash flow. Back this out, and the actual shortfall was closer to $200 million in the quarter, which can almost entirely be blamed on the dramatic drop in energy prices last quarter. 

A peek at outlook
In light of the weak commodity price environment, LINN Energy has taken several actions this year to make sure it makes it through the downturn without weakening its ability to grow when conditions improve. The first step was to cut its distribution and capital budget in half to start the year. However, now that it's a month and a half deeper into the year, the company is revising its plan yet again, as it's taking another 29% chunk out of its capital budget.

Under the new spending plan of $600 million, which is 65% less than the company spent in 2014, LINN Energy's production is actually expected to modestly decline this year. Its current forecast is for production of 1,090 MMcfe/d to 1,200 MMcfe/d, which is anywhere from flat to a 10% decline from the 1,210 MMcfe/d the company averaged in 2014. However, the company does expect this production to be enough to fully fund its spending plan and its distribution with internally generated cash flow.

The company did note that it is working to finalize its agreement with GSO Capital Partners on a DrillCo venture so the company can grow its production without spending any more of its own money. The $500 million funding vehicle could enable the company to boost production later in the year if the price of oil does pick up. Further, it's also looking at a similar venture for acquisitions, which could also provide a boost later in the year without adding any more weight to its balance sheet.

Investor takeaway
Given what happened to the price of oil over the past few months, LINN Energy is digging in and not taking any chances. It's cutting back to the bare minimum and staying within its cash flow in order to ensure that its financials don't weaken should the price of oil remain weak for an extended period of time. It's really the prudent move given where things stand right now.