Linn Energy, LLC : LINN Energy Announces First-Quarter 2012 Results and 5 Percent Distribution Increase
04/26/2012| 06:19am US/Eastern
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HOUSTON, April 26, 2012 (GLOBE NEWSWIRE) -- LINN Energy, LLC
(Nasdaq:LINE) announced today financial and operating results
for the three months ended March 31, 2012, and the
company's outlook for the remainder of 2012.
LINN Energy reported the following significant first-quarter
2012 results:
Drilled three Hogshooter wells on our Granite Wash acreage,
with average initial production rates of approximately
2,500 Bbls/d of oil, 500 Bbls/d of NGLs and 3 MMcf/d of gas
Increased average daily production 51 percent to 471
MMcfe/d, compared to 312 MMcfe/d for the first-quarter 2011
Increased Adjusted EBITDA 44 percent to $302 million,
compared to $210 million for the first-quarter 2011
Achieved a distribution coverage ratio of 1.14x, including
the 5 percent distribution increase, compared to 1.15x in
the first-quarter 2011
LINN Energy also reported the following significant
year-to-date 2012 highlights:
Announced quarterly cash distribution increase of 5 percent
to $0.725 per unit, or $2.90 per unit on an annualized
basis, for the first-quarter 2012
- Expected natural gas production is hedged approximately 100
percent for six years through 2017
- Expected oil production is 100 percent hedged for four
years through 2015 and approximately 82 percent hedged in
2016
Announced a total of approximately $1.8 billion in
acquisition and joint-venture agreements:
- $1.2 billion acquisition of properties in the Kansas
Hugoton field from BP
- $400 million joint-venture agreement to partner with
Anadarko in the CO2 enhanced oil recovery development of the
Salt Creek field in Wyoming
- $175 million acquisition of properties located in East
Texas
Raised $761 million in gross proceeds through a
public-equity offering and LINN's continuous-equity
offering program
Completed a $1.8 billion offering of 6.25 percent senior
notes due 2019
Increased revolving credit-facility commitment from $1.5
billion to $2 billion
Expect strong coverage of more than 1.20x for the second
half of 2012, including the recent 5 percent distribution
increase
"LINN has already announced approximately $1.8 billion
of transactions in the first quarter, exceeding our total
acquisitions for the full-year 2011. Based on this jumpstart
to the year and our outlook for the remainder of 2012, our
Board of Directors approved a 5 percent increase in our
distribution to $0.725 per unit, or $2.90 per unit on an
annualized basis, for the first-quarter 2012," said Mark
E. Ellis, Chairman, President and Chief Executive Officer.
"This will mark the third consecutive year we have
increased the distribution by 5 percent."
"Our strong balance sheet and access to capital markets
position us to continue to capitalize on the robust
acquisition market and pursue our organic growth
strategy," added Ellis. "Consistent with our
hedging strategy, we also further strengthened our
industry-leading hedge positions to provide approximately 100
percent coverage on natural gas for six years and oil for
four years. We had a phenomenal first quarter, and we expect
continued strong performance for the remainder of the
year."
Acquisitions
Year-to-date 2012, LINN has executed a total of approximately
$1.8 billion in acquisition and joint-venture agreements,
which are all immediately accretive to distributable cash
flow per unit. These mature long-life assets have a low
decline rate of less than 10 percent. Consistent with the
company's strategy, LINN has already hedged approximately
100 percent of expected production for more than four years.
The company has also identified multiple organic development
and efficiency opportunities on these assets.
The company completed a $1.2 billion acquisition in the
liquids-rich Kansas Hugoton field. This impactful transaction
marks the company's entry into the largest conventional
natural gas field in the U.S. It added proved reserves of
approximately 730 Bcfe and liquids-rich production of
approximately 110 MMcfe/d. The Jayhawk Gas Plant, with
processing capacity of 450 MMcf/d that is currently just 41
percent utilized, offers potential upside. The company has
also identified approximately 500 recompletion opportunities
and 800 future drilling locations.
LINN also closed a joint-venture agreement to partner with
Anadarko in the CO2 enhanced oil recovery development of the
Salt Creek field in Wyoming. Anadarko assigned LINN 23
percent of its interest in the field in exchange for future
funding of $400 million of Anadarko's development costs.
The Salt Creek field is expected to deliver 10 years of
steady production growth while, at the same time, providing a
low base-decline rate.
In addition, the company signed a definitive purchase
agreement to acquire properties located in East Texas for a
contract price of $175 million. This mature long-life asset
has a low decline rate of less than 10 percent and proved
reserves of approximately 136 Bcfe, which is 100 percent
proved developed producing. The acquisition is expected to
close on or before May 1, 2012.
LINN continues to deliver strong results from the Granite
Wash, where the company is focused on developing high-return,
liquids-rich opportunities. In the first quarter, the company
had nine operated rigs drilling in the area and completed 14
operated wells. The company currently has 93 operated
horizontal wells producing and 16 operated wells drilling,
completing or awaiting completion. LINN also owns working
interest in 32 non-operated horizontal producing wells with
three additional non-operated wells in progress. The
company's net horizontal Granite Wash production during
the first quarter averaged approximately 137 MMcfe/d.
During the first quarter, LINN drilled its first three
operated horizontal Hogshooter wells. These wells were
completed in April and are in the early flow-back period.
LINN's first well had an initial production rate of 2,454
Bbls/d of oil and 3 MMcf/d of liquids-rich natural gas. The
second well had an initial rate of 2,891 Bbls/d of oil 4.4
MMcf/d of liquids-rich natural gas. The third well had an
initial rate of 2,125 Bbls/d of oil and 3.4 MMcf/d of
liquids-rich natural gas.
LINN's technical team has mapped the Hogshooter interval
across the company's acreage in the vicinity of the first
three wells. Based on this technical work, the company
believes there are approximately 50 additional locations in
this area, and LINN owns substantial additional acreage in
both Texas and Oklahoma that will be evaluated for Hogshooter
potential. LINN is also evaluating other shallow oil-bearing
intervals in the Texas Panhandle such as the Lansing,
Cleveland and Tonkawa. LINN believes its inventory of shallow
oil opportunities will increase in this area. Given the
results LINN has experienced to date from the Hogshooter
wells, the company plans to shift a portion of capital from
the traditional Granite Wash drilling program to focus on the
Hogshooter zone. LINN anticipates drilling 12 additional
Hogshooter wells in the second half of this year.
In 2012, the company plans to allocate more than 50 percent
of its capital spending to the Granite Wash to drill
approximately 65 operated horizontal wells and anticipates
the program will generate rates of return in excess of 50
percent. The company also plans to participate in 16
non-operated horizontal wells. In addition, construction is
underway on a planned 43-mile extension of the company's
gathering pipeline, compression and associated facilities,
which will provide additional takeaway capacity for Granite
Wash production.
Supplemental information on the company's financial and
operational results can be found under Presentations at www.linnenergy.com.
First-Quarter 2012 Results
LINN increased production 51 percent to an average of 471
MMcfe/d in the first-quarter 2012, compared to 312 MMcfe/d
for the first-quarter 2011. This increase in production is
attributed to positive results from the company's organic
program and continued success of its acquisition program.
During the first-quarter 2012, LINN's hedged realized
average price for natural gas was $6.33 per Mcf. This is
$3.17 per Mcf more than its unhedged realized average price
of $3.16 per Mcf. The company's hedged realized average
price for oil was $92.80 per Bbl. This is $4.45 per Bbl less
than its unhedged realized average price of $97.25 per Bbl.
Realized average price for NGL production was $40.21 per Bbl
for the first-quarter 2012.
Lease-operating expenses for the first-quarter 2012 were
approximately $72 million, or $1.67 per Mcfe, compared to $46
million, or $1.63 per Mcfe, in the first-quarter 2011.
Transportation expenses for the first-quarter 2012 were
approximately $11 million, or $0.25 per Mcfe, compared to $6
million, or $0.21 per Mcfe, in the first-quarter 2011. Taxes,
other than income taxes for the first-quarter 2012, were
approximately $25 million, or $0.59 per Mcfe, compared to $16
million, or $0.56 per Mcfe, during the first-quarter 2011.
General and administrative expenses, excluding unit-based
compensation expenses, for the first-quarter 2012 were
approximately $36 million, or $0.83 per Mcfe, compared to $25
million, or $0.90 per Mcfe, in the first-quarter 2011.
Depreciation, depletion and amortization expenses for the
first-quarter 2012 were approximately $117 million, or $2.74
per Mcfe, compared to $66 million, or $2.36 per Mcfe, in the
first-quarter 2011.
LINN's distribution coverage ratio was 1.14x for the
first-quarter 2012, including the recent 5 percent
distribution increase, compared to 1.15x in the first-quarter
2011. The company generated adjusted EBITDA (a non-GAAP
financial measure) of $302 million for the first-quarter
2012, compared to $210 million in the first-quarter 2011.
Adjusted EBITDA is a measure used by company management to
evaluate cash flow and the company's ability to sustain
or increase distributions. A reconciliation of adjusted
EBITDA to income (loss) is provided in this release (see
Schedule 1). The most significant reconciling items are
interest expense and noncash items, including the change in
fair value of derivatives and depreciation, depletion and
amortization.
LINN utilizes commodity hedging to capture cash-flow margin
and reduce cash-flow volatility. The company reported gains
on derivatives from oil and natural gas hedges of
approximately $2 million for the quarter. This includes $53
million of noncash losses from the change in fair value of
hedge positions, due to an increase in commodity prices, and
realized hedge gains of $55 million during the first quarter.
Noncash gains or losses do not affect adjusted EBITDA, cash
flow from operations or the company's ability to pay cash
distributions.
For the first-quarter 2012, the company reported a net loss
of $6 million, or $0.04 per unit, which includes noncash
losses of $53 million, or $0.28 per unit, from the change in
fair value of hedges covering future production, and a loss
of $1 million, or $0.01 per unit, on the sale of assets.
Excluding these items, adjusted net income (a non-GAAP
financial measure) for the first quarter 2012 was $48
million, or $0.25 per unit (see Schedule 2).
Adjusted net income is presented as a measure of the
company's operational performance from oil and natural
gas properties, prior to derivative gains and losses,
impairment of long-lived assets, loss on extinguishment of
debt and (gains) losses on the sale of assets, net, because
these items affect the comparability of operating results
from period to period. A reconciliation of adjusted net
income to net income (loss) is provided in this release (see
Schedule 2).
Financial Update
LINN has fully financed the approximately $2.3 billion of
acquisitions announced since November 2011, through recent
equity and bond offerings totaling $2.6 billion. During the
first-quarter 2012, LINN accessed the equity markets to raise
$761 million in gross proceeds. The company raised $703
million by issuing 19.6 million units through a public-equity
offering that provided net proceeds of approximately $674
million. As previously announced, the company issued 1.5
million units in January for net proceeds of approximately
$57 million through a continuous-equity offering. Total net
proceeds from these offerings were used to repay a portion of
the indebtedness outstanding under the company's
revolving credit facility. In March 2012, the company
issued $1.8 billion aggregate principal amount of 6.25
percent senior unsecured notes due 2019. The net proceeds
from this offering, which closed March 2, 2012, were used to
fund the closed Hugoton Basin acquisition, repay indebtedness
outstanding under its revolving credit facility, and for
general corporate purposes.
Hedging Update
LINN recently expanded its oil and natural gas hedge
positions. Based on current production estimates, the company
is approximately 100 percent hedged on expected natural gas
production for six years through 2017. Expected oil
production is 100 percent hedged for four years through 2015
and approximately 82 percent hedged in 2016. For 2012, the
company is hedged at a weighted average oil price of $98.08
per Bbl and a weighted average natural gas price of $5.47 per
Mcf.
Guidance Update
Updated operational and financial guidance is provided in the
supplemental information posted at www.linnenergy.com.
Cash Distributions
On April 24, 2012, the company's Board of Directors
declared a quarterly cash distribution of $0.725 per unit, or
$2.90 per unit on an annualized basis, with respect to the
first-quarter 2012. The distribution will be paid May 15,
2012, to unitholders of record as of the close of business
May 8, 2012.
Conference Call and Webcast
As previously announced, management will host a
teleconference call April 26, 2012, at 10 a.m. Central/11
a.m. Eastern to discuss LINN Energy's first-quarter 2012
results and its outlook for the remainder of 2012. Prepared
remarks by Mark E. Ellis, President and Chief Executive
Officer, and Kolja Rockov, Executive Vice President and Chief
Financial Officer, will be followed by a question and answer
period.
Investors and analysts are invited to participate in the call
by phone at (877) 224-9081 (Conference ID: 11459310) or via
the internet at www.linnenergy.com. A replay
of the call will be available on the company's website or
by phone at (855) 859-2056 (Conference ID: 11459310) for a
seven-day period following the call.
Non-GAAP Measures
Adjusted EBITDA is a non-GAAP financial measure that is
reconciled to its most comparable GAAP financial measure
under the heading "Explanation and Reconciliation of
Adjusted EBITDA" in this press release (see Schedule 1).
Adjusted net income is a non-GAAP financial measure that is
reconciled to its most comparable GAAP financial measure
under the heading "Explanation and Reconciliation of
Adjusted Net Income" in this press release (see Schedule
2).
ABOUT LINN ENERGY
LINN Energy's mission is to acquire, develop and maximize
cash flow from a growing portfolio of long-life oil and
natural gas assets. LINN Energy is a top-15 U.S. independent
oil and natural gas development company, with approximately
4.3 Tcfe of proved reserves (pro forma for announced 2012
acquisitions) in producing U.S. basins as of Dec. 31, 2011.
More information about LINN Energy is available at www.linnenergy.com.
This press release includes "forward-looking
statements." All statements, other than statements of
historical facts, included in this press release that address
activities, events or developments that the company expects,
believes or anticipates will or may occur in the future are
forward-looking statements. These statements include, but are
not limited to forward-looking statements about acquisitions
and the expectations of plans, strategies, objectives and
anticipated financial and operating results of the company,
including the company's drilling program, production,
hedging activities, capital expenditure levels and other
guidance included in this press release. These statements are
based on certain assumptions made by the company based on
management's experience and perception of historical
trends, current conditions, anticipated future developments
and other factors believed to be appropriate. Such statements
are subject to a number of assumptions, risks and
uncertainties, many of which are beyond the control of the
company, which may cause actual results to differ materially
from those implied or expressed by the forward-looking
statements. These include risks relating to the company's
financial performance and results, availability of sufficient
cash flow to pay distributions and execute its business plan,
prices and demand for oil, natural gas and natural gas
liquids, the ability to replace reserves and efficiently
develop current reserves and other important factors that
could cause actual results to differ materially from those
projected as described in the company's reports filed
with the Securities and Exchange Commission. See "Risk
Factors" in the company's Annual Report filed on
Form 10-K and other public filings and press releases.
Any forward-looking statement speaks only as of the date on
which such statement is made and the company undertakes no
obligation to correct or update any forward-looking
statement, whether as a result of new information, future
events or otherwise.
Schedule 1
LINN Energy, LLC
Explanation and Reconciliation of Adjusted EBITDA
Adjusted EBITDA
Adjusted EBITDA (a non-GAAP financial measure), as defined by
the Company, may not be comparable to similarly titled
measures used by other companies. Therefore, adjusted EBITDA
should be considered in conjunction with net income and other
performance measures prepared in accordance with GAAP, such
as operating income or cash flow from operating activities.
Adjusted EBITDA should not be considered in isolation or as a
substitute for GAAP measures, such as net income, operating
income or any other GAAP measure of liquidity or financial
performance.
The Company defines adjusted EBITDA as net income (loss) plus
the following adjustments:
Net operating cash flow from acquisitions and divestitures,
effective date through closing date;
Interest expense;
Depreciation, depletion and amortization;
Impairment of long-lived assets;
Write-off of deferred financing fees;
(Gains) losses on sale of assets and other, net;
Provision for legal matters;
Loss on extinguishment of debt;
Unrealized (gains) losses on commodity derivatives;
Unrealized (gains) losses on interest rate derivatives;
Realized (gains) losses on interest rate derivatives;
Realized (gains) losses on canceled derivatives;
Unit-based compensation expenses;
Exploration costs; and
Income tax (benefit) expense.
Adjusted EBITDA is a measure used by Company management to
indicate (prior to the establishment of any reserves by its
Board of Directors) the cash distributions the Company
expects to make to its unitholders. Adjusted EBITDA is
also a quantitative measure used throughout the investment
community with respect to publicly-traded partnerships and
limited liability companies.
The following presents a reconciliation of net loss to
adjusted EBITDA:
Three Months Ended
March 31,
2012
2011
(in thousands)
Net loss
$ (6,202)
$ (446,682)
Plus:
Net operating cash flow from acquisitions and
divestitures, effective date through closing date
39,093
7,051
Interest expense, cash
42,879
63,590
Interest expense, noncash
34,640
(126)
Depreciation, depletion and amortization
117,276
66,366
Write-off of deferred financing fees
1,660
-
(Gains) losses on sale of assets and other, net
1,435
(823)
Provision for legal matters
635
492
Loss on extinguishment of debt
-
84,562
Unrealized losses on commodity derivatives
53,224
425,285
Unit-based compensation expenses
8,171
5,638
Exploration costs
410
445
Income tax expense
8,918
4,198
Adjusted EBITDA
$ 302,139
$ 209,996
The following presents a reconciliation of net cash provided
by operating activities to adjusted EBITDA:
Net cash provided by operating activities for the three
months ended March 31, 2012, was approximately $36
million and includes cash interest payments of approximately
$43 million, premiums paid for commodity derivatives of
approximately $178 million and other items totaling
approximately $45 million that are not included in adjusted
EBITDA. Net cash provided by operating activities for
the three months ended March 31, 2011, was approximately
$108 million and includes cash interest payments of
approximately $63 million and other items totaling
approximately $39 million that are not included in adjusted
EBITDA.
Schedule 2
LINN Energy, LLC
Explanation and Reconciliation of Adjusted Net Income
Adjusted Net Income
Adjusted net income (a non-GAAP financial measure), as
defined by the Company, may not be comparable to similarly
titled measures used by other companies. Therefore,
adjusted net income should be considered in conjunction with
net income (loss) and other performance measures prepared in
accordance with GAAP. Adjusted net income should not be
considered in isolation or as a substitute for GAAP measures,
such as net income (loss) or any other GAAP measure of
liquidity or financial performance. Adjusted net income
is a performance measure used by management to evaluate the
Company's operational performance from oil and natural
gas properties, prior to unrealized (gains) losses on
derivatives, realized (gains) losses on canceled derivatives,
impairment of long-lived assets, loss on extinguishment of
debt and (gains) losses on sale of assets, net.
The following presents a reconciliation of net loss to
adjusted net income:
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