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 (LINE) has been a fast growing company since its IPO in 2006. During that time period they have made 52 acquisitions of productive property totaling $9 billion. Even though they're close to their 52-week high ($41.13), the company has much more to offer. Linn Energy is a solid long-term play.
Reasons I am so bullish:
- Linn Energy has $1.9 billion in available capital. While they only have $24 million in cash, they also have a credit facility.
- Their annual dividend is $2.90 a share, which is a yield of over 7%.
- In the first quarter of 2012, production has increased year-over-year by 51% and they are estimating a 65% increase in production for 2012. They continue to show impressive growth.
- Linn Energy is in the game for the long run, which is shown by their commitment to natural gas and their long-term purchases.
- As of March 2012, 54% of Linn Energy's proven reserves were natural gas while 46% were oil and NGLs (Natural Gas Liquids).
- They have 4.2 TCFE (Trillion Cubic Feet Equivalents) of proven reserves that have an approximate life span of 21 years.
- As of March 2012 Linn Energy has hedged close to 100% of its natural gas through 2017. They accomplished this utilizing puts (approximately 35.8%) and swaps (approximately 64.2%).
- As of March 2012 Linn Energy has hedged close to 100% of its oil through 2016. They accomplished this utilizing puts (approximately 23.4%) and swaps (approximately 76.6%).
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Linn Energy's debt:
- In March of 2012, Linn Energy sold $1.8 billion worth of senior unsecured notes yielding at 6.25%. They come due in 2019.
- Linn Energy owes $75 million on their revolving credit facility as of 2012.
- As of December 31, 2011, Linn Energy owed $940 million on their revolving credit facility.
- As of March 31, 2012, Linn Energy has $4.9 billion in debt.
| March 31, 2011 | December 31, 2012 | |
| Credit facility | $940,000,000 | $75,000,000 |
| Senior notes, net | $3,053,657,000 | $4,854,542,000 |
Some risks:
- Linn Energy's Q1 2012 earnings were $0.25 per share, which missed the estimates of $0.41 per share.
- Linn Energy's Q4 2011 earnings were $0.51 per share. This met the estimates of $0.51 per share.
- Linn Energy missed their Q1, Q2 and Q3 2011 earnings per share estimates.
- The last time Linn Energy beat EPS estimates was in Q4 2010.
- Linn Energy has taken a risk being as heavily involved in natural gas as they are. However, I believe that in the long run the risk will pay off.
- Linn Energy is purely in the United States. While this can protect them from the volatility of the Asian, European and African markets, it also severely limits their consumer base and access to resources.
5 more reasons Linn Energy is undervalued:
- Linn Energy has disclosed that they plan to continue making acquisitions.
- Linn Energy has just paid BP $1.2 billion dollars to acquire the Hugoton Basin properties that BP controlled. The Hugoton Basin property has approximately 2,400 working natural gas wells and more than 800 potential drilling locations. The Hugoton Basin is one of the largest natural gas fields in the United States.
- Linn Energy is the 13th largest domestic oil and natural gas company in the United States.
- Natural gas is expected to overtake coal as the second most used fossil fuel around 2035.
- Linn Energy's land positions include:
Disclosure: I am long LINE. I have owned stock in Linn Energy since 2009.
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