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LINN Details 1Q Cost Cut Initiatives; Production, Financials

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   |    Wednesday,April 29,2015

LINN Energy, LLC reported financial and operating results for the three months ended March 31, 2015.

Highlights:

• Grew average daily production by two percent to approximately 1,201 MMcfe/d for the first quarter 2015, compared to the estimated year-end 2014 exit rate of approximately 1,180 MMcfe/d, while decreasing the budget for total oil and natural gas capital expenditures by approximately 65 percent for 2015 compared to 2014;
• Total revenues of approximately $917 million for the first quarter 2015;
• Improved lease operating expenses by eight percent to approximately $173 million for the first quarter 2015, compared to guidance of $189 million (mid-point);
• Net loss of approximately $339 million, or $1.03 per unit, for the first quarter 2015, which includes non-cash impairment charges of approximately $533 million, or $1.61 per unit, and non-cash gains related to changes in fair value of unsettled commodity derivatives of approximately $149 million, or $0.45 per unit; and
• Shortfall of net cash provided by operating activities after distributions to unitholders and discretionary adjustments considered by the Board of Directors, including total development of oil and natural gas properties (see Schedule 1) of approximately $37 million for the first quarter 2015.

Accomplishments:

• Actively managed overall cost structure and continue to target combined run-rate cost reductions in lease operating expenses, general and administrative expenses and capital costs of approximately $100 million to $150 million on an annualized basis;
• Current guidance for the full-year 2015 anticipates funding total oil and natural gas capital expenditures, along with the distribution, from internally generated cash flow with an excess of net cash after total oil and natural gas development costs of approximately $63 million;
• Entered into additional oil swaps in February and April 2015 at an average price of approximately $58 per Bbl, which resulted in an aggregate oil hedge position of approximately 80 percent for the remainder of 2015 at an average price of approximately $91 per Bbl, while natural gas remains hedged approximately 100 percent for 2015 at an average price of approximately $5.12 per MMBtu;
• Expect strong liquidity position of approximately $1.3 billion following the next semi-annual borrowing base redetermination scheduled for May 2015;
• Announced the signing of a non-binding letter of intent with GSO Capital Partners LP, the credit platform of The Blackstone Group L.P., to fund up to $500 million of oil and natural gas development with 5-year availability ("DrillCo"); and
• Announced the signing of a non-binding letter of intent with private capital investor Quantum Energy Partners to commit up to $1 billion of equity capital to fund acquisitions and development of oil and natural gas assets ("AcqCo").

Mark E. Ellis, Chairman, President and Chief Executive Officer, commented: "Our strategic portfolio realignment in 2014 well-positioned LINN for this low commodity price environment. Efficient management of our stable asset base and aggressive cost management allowed us to generate strong results in the first quarter. We are pleased that our 2015 guidance anticipates funding total oil and natural gas capital expenditures, along with the distribution, from internally generated cash flow. Our success in navigating these challenging times is a testament to the high quality of our assets and the hard work and dedication of our employees. In addition, we remain excited about our DrillCo and AcqCo initiatives and look forward to pursuing a variety of growth opportunities in the current market."

Operations Update

In February 2015, LINN announced a 65 percent reduction in its 2015 oil and natural gas capital budget to approximately $520 million, compared to $1.5 billion incurred during 2014. Of the $520 million budget, approximately $183 million was attributable to the first quarter. The Company's 2015 capital program is primarily focused on optimization projects, including steam flood development and enhancement in California, as well as efficient optimization, workover and recompletion opportunities across its diverse asset portfolio.

In addition, LINN has undertaken a comprehensive cost reduction initiative that has already generated significant savings. As previously announced, LINN is targeting lease operating expense reductions of approximately five percent and capital cost reductions of approximately 10 to 15 percent as compared to budgeted levels. Based on successful cost management efforts to date and favorable performance compared to guidance, the Company remains encouraged that it will meet or exceed these run-rate cost reduction targets.

First Quarter 2015 Results

Production increased nine percent to an average of approximately 1,201 MMcfe/d for the first quarter 2015, compared to 1,104 MMcfe/d for the first quarter 2014. This increase was attributable to a favorable change in LINN's asset portfolio from the strategic acquisition and divestiture activities during 2014 and positive results from the Company's capital program.

Lease operating expenses for the first quarter 2015 were approximately $173 million, or $1.60 per Mcfe, compared to $194 million, or $1.95 per Mcfe, for the first quarter 2014. This decrease was primarily due to lower costs as a result of the properties sold during the fourth quarter 2014, a decrease in steam costs and cost savings initiatives, partially offset by costs associated with properties acquired during the third quarter 2014. Transportation expenses for the first quarter 2015 were approximately $54 million, or $0.50 per Mcfe, compared to $46 million, or $0.46 per Mcfe, for the first quarter 2014. This increase was primarily due to higher transportation costs associated with recently acquired properties. Taxes, other than income taxes, for the first quarter 2015 were approximately $54 million, or $0.50 per Mcfe, compared to $66 million, or $0.66 per Mcfe, for the first quarter 2014. This decrease was primarily attributable to lower commodity prices. General and administrative expenses for the first quarter 2015 were approximately $79 million, or $0.73 per Mcfe, compared to $79 million, or $0.80 per Mcfe, for the first quarter 2014, which include approximately $17 million and $18 million, respectively, of non-cash unit-based compensation expenses. Depreciation, depletion and amortization expenses for the first quarter 2015 were approximately $215 million, or $1.99 per Mcfe, compared to $268 million, or $2.70 per Mcfe, for the first quarter 2014.

For the first quarter 2015, the Company reported a net loss of approximately $339 million, or $1.03 per unit, which includes non-cash impairment charges of approximately $533 million, or $1.61 per unit, and non-cash gains related to changes in fair value of unsettled commodity derivatives of approximately $149 million, or $0.45 per unit. For the first quarter 2014, the Company reported a net loss of approximately $85 million, or $0.27 per unit, which includes non-cash losses related to changes in fair value of unsettled commodity derivatives of approximately $219 million, or $0.67 per unit.

Hedging Update

LINN is hedged approximately 100 percent on expected natural gas production in 2015, 2016 and 2017 at average prices ranging from $4.48 to $5.12 per MMBtu. The Company does not hedge the portion of natural gas production used to economically offset natural gas consumption related to its oil operations in California.

For expected oil production, the Company is hedged approximately 80 percent for the remainder of 2015 at an average price of approximately $91 per Bbl and approximately 65 percent in 2016 at an average price of approximately $90 per Bbl. Currently, the Company does not directly hedge NGL production or its exposure to oil differentials.

As of March 31, 2015, LINN's hedge book had an estimated net positive mark-to-market value of approximately $2.1 billion.

Credit Facility Update

LINN expects to have strong liquidity of approximately $1.3 billion following the next semi-annual borrowing base redetermination scheduled for May 2015, assuming anticipated borrowing base reductions and amounts outstanding as of March 31, 2015. Currently, LINN has a borrowing base of $4.5 billion, which provides for a $4 billion revolving credit facility and a $500 million term loan, and Berry has a $1.4 billion borrowing base and a $1.2 billion revolving credit facility. The maturity date for the LINN and Berry credit facilities is April 2019.

Pending final approval from its bank group, the Company expects LINN's borrowing base to decrease from $4.5 billion to approximately $4.05 billion and Berry's borrowing base to decrease from $1.4 billion to approximately $1.2 billion at the upcoming redetermination as a result of lower commodity prices. In connection with the reduction in Berry's borrowing base, LINN intends to make a contribution to Berry of approximately $250 million, which is expected to be posted as restricted cash with Berry's lenders and may be returned to LINN in the future if commodity prices improve. The modest 10 percent decrease in LINN's borrowing base is attributable to the stable character of its assets and extensive hedging profile, while the larger reduction in Berry's borrowing base is primarily due to its unhedged oil exposure.

Cash Distributions and Dividends

During the first quarter 2015, LINN paid three monthly cash distributions of $0.1042 per unit ($1.25 per unit on an annualized basis) on January 15, February 17 and March 17, 2015.

LinnCo paid three monthly cash dividends of $0.1042 per common share ($1.25 per share on an annualized basis) on January 16, February 18 and March 18, 2015.