Exploration & Production | Quarterly / Earnings Reports
LINN Hit by Poor Results in Q2; Remains Optimistic for Year-End
Print
|
LINN Energy LLC and LinnCo LLC has reported financial and operating results for the three months ended June 30, 2013, and outlook for the remainder of 2013.
LINN reported the following second quarter 2013 results:
- Average daily production of 780 MMcfe/d compared to 630 MMcfe/d for the second quarter 2012
- Total revenues and other of approximately $839 million compared to $801 million for the second quarter 2012, which includes non-cash changes in fair value of unsettled commodity derivatives of approximately $271 million and $304 million, respectively, including the reduction of put option premium value over time
- Net income per unit of $1.47 per unit compared to $1.19 per unit for the second quarter 2012, which includes non-cash changes in fair value of unsettled commodity derivatives of approximately $1.15 per unit and $1.52 per unit, respectively, including the reduction of put option premium value over time
- Adjusted EBITDA (a non-GAAP financial measure) of approximately $362 million compared to $319 million for the second quarter 2012
- Distributable cash flow per unit of $0.65 per unit compared to $0.70 per unit for the second quarter 2012
- Distribution coverage ratio of 0.89x
Mark E. Ellis, Chairman, President and Chief Executive Officer, commented: "LINN has experienced a challenging start to the year as lower than expected returns from our capital program coupled with historically low NGL prices have weighed on year-to-date results. While these and other challenges have made for a disappointing first half of 2013, we are optimistic about the remainder of the year and expect to deliver annual production growth of approximately 8% - 10%, as July volumes averaged approximately 815 MMcfe/d."
Operational Highlights
Second quarter 2013 production volumes were negatively affected by poor capital performance, additional ethane-rejection and continued infrastructure curtailments. Specifically, production volumes from the Jonah Field were negatively affected by ethane-rejection due to the depressed price of ethane. LINN estimates ethane-rejection in the Jonah Field reduced second quarter 2013 production volumes by approximately 6 MMcfe/d. Continued infrastructure curtailments in the Permian Basin resulted in lower than expected production volumes caused by shut-ins and high line pressures. On June 1, 2013, the previously announced Panther divestiture became effective, which also reduced second quarter 2013 results by approximately 7 MMcfe/d. The Company expects the full-year impact of the Panther divestiture to affect 2013 estimated production by approximately 14 MMcfe/d. In addition, annual production volumes continue to be negatively impacted by the Company's Texas Hogshooter oil program in late 2012 and early 2013, which underperformed the Company's expectations.
The Company anticipates production to average approximately 820 MMcfe/d for the third quarter 2013 and approximately 850 MMcfe/d for the fourth quarter 2013 (at the mid-point of the Company's guidance range), which represents 8% - 10% growth in production for 2013. The anticipated production growth during the remainder of 2013, while economically attractive, does not provide the same margins due to the Company's shortfall in expected oil production.
LINN has reported updates on its individual properties below:
LINN Shifts Panhandle Focus to Hogshooter; Eyes Two Permian Targets
LINN to Drill 78 Wells at Pinedale-Jonah, Hugoton Properties
Second Quarter 2013 Results
LINN increased production 24% to an average of 780 MMcfe/d for the second quarter 2013, compared to 630 MMcfe/d for the second quarter 2012. This increase in production is primarily attributable to acquisitions completed in 2012. Total revenues and other increased approximately $38 million to approximately $839 million for the second quarter 2013, from approximately $801 million for the second quarter 2012, which includes non-cash changes in fair value of unsettled commodity derivatives of approximately $271 million and $304 million, respectively, including the reduction of put option premium value over time.
During the second quarter 2013, LINN's hedged realized average price for natural gas was $5.24 per Mcf. This is $1.12 per Mcf more than its unhedged realized average price of $4.12 per Mcf. The Company's hedged realized average price for oil was $93.49 per Bbl. This is $2.22 per Bbl more than its unhedged realized average price of $91.27 per Bbl. Realized average price for NGL production was $26.69 per Bbl for the second quarter 2013.
Lease operating expenses for the second quarter 2013 were approximately $84 million, or $1.18 per Mcfe, compared to $70 million, or $1.22 per Mcfe, for the second quarter 2012. Transportation expenses for the second quarter 2013 were approximately $29 million, or $0.41 per Mcfe, compared to $22 million, or $0.38 per Mcfe, for the second quarter 2012. Taxes, other than income taxes for the second quarter 2013 were approximately $32 million, or $0.46 per Mcfe, compared to $31 million, or $0.53 per Mcfe, for the second quarter 2012. General and administrative expenses for the second quarter 2013 were approximately $46 million, or $0.65 per Mcfe, compared to $41 million, or $0.72 per Mcfe, for the second quarter 2012. Depreciation, depletion and amortization expenses for the second quarter 2013 were approximately $199 million, or $2.80 per Mcfe, compared to $144 million, or $2.50 per Mcfe, for the second quarter 2012.
Net income increased by approximately $108 million to approximately $345 million for the second quarter 2013, from approximately $237 million for the second quarter 2012. The increase was primarily due to higher production revenues and lower expenses, including interest, partially offset by lower gains on oil and natural gas derivatives. On a per unit basis, net income per unit for the second quarter 2013 was $1.47 per unit compared to $1.19 per unit in the second quarter 2012, which includes non-cash changes in fair value of unsettled commodity derivatives of approximately $1.15 per unit and $1.52 per unit, respectively, including the reduction of put option premium value over time.
Financial Update
During the second quarter 2013, the Company redeemed the remaining outstanding principal amount of $41 million of its 11.75% senior notes due 2017. In July 2013, LINN redeemed the remaining outstanding principal amount of $14 million of its 9.875% senior notes due 2018. These transactions will allow LINN to reduce future interest expense.
LINN amended and restated its revolving credit facility in April 2013. In connection with the amendment, LINN received an increase in the maximum commitment amount from $3.0 billion to $4.0 billion and increased the number of lenders from thirty-five to forty-one. The borrowing base under the credit facility remained unchanged at $4.5 billion. In addition, LINN extended the maturity to five years, or April 2018. As of June 30, 2013, LINN had approximately $2.6 billion available under its revolving credit facility. The administrative agent for the credit facility is Wells Fargo Bank, and Royal Bank of Canada serves as the syndication agent. Barclays, Credit Agricole, Citi and The Royal Bank of Scotland serve as co-documentation agents.
Guidance Update
The Company expects production for the third and fourth quarters 2013 to average approximately 820 MMcfe/d and 850 MMcfe/d, respectively (at the mid-point of the Company's guidance range). The Company's estimates for the remainder of 2013 do not include the potential impact of ethane rejection, which could total approximately 10 MMcfe/d and 26 MMcfe/d in the third and fourth quarters 2013, respectively. Decisions of whether to reject ethane are made monthly based on economics at each processing location in an effort to maximize value. Using current commodity price assumptions, any potential ethane rejection will have a negative impact on production volumes but no impact to revenue.
Included in the supplemental information, LINN has provided guidance for 2013 on a stand-alone basis as well as pro forma for the pending merger with Berry Petroleum Company ("Berry"), with an assumed effective date as of October 1 for guidance purposes only. Management does not currently intend to recommend an increase in the distribution in 2013.
Berry Petroleum Merger Update
LINN intends to file Amendment No. 3 to its Registration Statement on Form S-4 regarding the Berry merger and Quarterly Report on Form 10-Q for the three months ended June 30, 2013, with the Securities and Exchange Commission (SEC) on August 8, 2013. Although the impact of the ongoing SEC inquiry on the timing of LinnCo's proposed merger with Berry is difficult to predict, LinnCo and LINN remain committed to the completion of the transaction.