Linn Energy, LLC (Nasdaq: LINE) announced today that it has filed its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2006 with the Securities and Exchange Commission. In addition, the Company announced financial and operating results for the three and nine months ended September 30, 2006 and revised guidance for 2006 and 2007. The Company demonstrated significant growth through acquisitions, and generated the following performance highlights for the third quarter of 2006 as compared to the third quarter of 2005:
-- Total wells increased 155% to 3,671 from 1,442
-- Total production increased 173% to 3,181 MMcfe from 1,165 MMcfe
-- Adjusted EBITDA increased 179% to $25.1 million from $9.0 million
-- Distributable Cash Flow increased 131% to $16.4 million from $7.1
million
Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures that are reconciled to their most comparable GAAP financial measure under the heading "Explanation and Reconciliation of Non-GAAP Financial Measures" in this press release.
Conference Call
As previously announced, management will host a teleconference call on Wednesday, November 15, 2006 at 9:00 AM Eastern Time to discuss Linn Energy's third quarter 2006 results and its outlook for the remainder of 2006 and the 2007 fiscal year. Prepared remarks by Michael C. Linn, Chairman, 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 (800) 510-0146 (Passcode: 25388812) or via the internet at http://www.linnenergy.com . A replay of the call will be available on the Company's website or by phone at (888) 286-8010 (Passcode: 90718822) for a seven-day period following the call.
ABOUT LINN ENERGY
Linn Energy is an independent natural gas and oil company focused on the development and acquisition of long-lived properties which complement its asset profile in producing basins within the United States. More information about Linn Energy is available on the internet at http://www.linnenergy.com .
This press release includes "forward-looking statements" within the meaning of the federal securities laws. 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. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include statements about the acquisitions and the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, including as to 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 financial performance and results, availability of sufficient cash flow to pay distributions and execute our business plan, prices and demand for oil and gas, our ability to replace reserves and efficiently develop our 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.
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.
(Financial Summary Follows)
Linn Energy, LLC
Explanation and Reconciliation of Non-GAAP Financial Measures
This press release includes the non-generally accepted accounting principles ("non-GAAP") financial measures of "Adjusted EBITDA" and "Distributable Cash Flow." The accompanying schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measure calculated and presented in accordance with United States generally accepted accounting principles ("GAAP"). The non-GAAP financial measures should not be considered as alternatives to GAAP measures, such as net income, operating income or any other GAAP measure of liquidity or financial performance.
We define Adjusted EBITDA as net income (loss) plus:
-- Interest expense;
-- Depreciation, depletion and amortization;
-- Write-off of deferred financing fees;
-- (Gain) loss on sale of assets;
-- (Gain) loss from equity investment;
-- Accretion of asset retirement obligation;
-- Unrealized (gain) loss on natural gas derivatives;
-- Realized (gain) loss on cancelled natural gas derivatives;
-- Unit-based compensation expense;
-- IPO cash bonuses; and
-- Income tax provision.
The costs of cancelling natural gas swaps before their original settlement date are adjustments to Adjusted EBITDA that require expenditure of cash. These costs were financed with borrowings under our credit facility, and such long term debt is recognized as an increase in cash from financing activities.
Adjusted EBITDA and Distributable Cash Flow are significant performance metrics used by our management to indicate (prior to the establishment of any reserves by our Board of Directors) the cash distributions we expect to pay our unitholders. Specifically, these financial measures indicate to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Adjusted EBITDA and Distributable Cash Flow are also quantitative standards used throughout the investment community with respect to publicly-traded partnerships and limited liability companies as metrics of core profitability or to assess the financial performance of assets.
The following table presents a reconciliation of our consolidated net income (loss) to Adjusted EBITDA and Distributable Cash Flow:
Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
(in thousands)
Net income (loss) $53,057 $(45,590) $85,273 $(63,265)
Plus:
Interest expense 11,204 998 16,539 3,282
Depreciation, depletion
and amortization 5,654 1,448 13,470 4,035
Write-off of deferred
financing fees 161 --- 664 364
(Gain) loss on sale of
assets (47) 3 --- 43
Loss from equity
investment --- --- --- 17
Accretion of asset
retirement obligation 61 67 180 124
Unrealized (gain) loss
on oil and gas
derivatives (49,198) 21,405 (77,176) 26,788
Realized loss on
cancelled natural gas
derivatives (A) --- 30,304 --- 38,281
Unit-based compensation
expense 4,191 --- 14,067 ---
IPO cash bonuses --- --- 2,039 ---
Income tax provision
(benefit) (B) --- 385 (74) 385
Adjusted EBITDA $25,083 $9,020 $54,982 $10,054
Less:
Cash interest expense (8,646) (1,906) (13,603) (3,596)
Distributable Cash Flow $16,437 $7,114 $41,379 $6,458
(A) During the three and nine months ended September 30, 2005, we
cancelled (before their original settlement date) a portion of out-
of-the-money natural gas swaps and realized a loss of $30.3 million
and $38.3 million, respectively. We subsequently hedged similar
volumes at higher prices.
(B) Linn Operating, LLC was not subject to federal income tax before
converting to a subchapter C corporation on June 1, 2005. Prior to
the conversion, there was no tax provision included in our
consolidated financial statements because all of our taxable income
or loss was included in the income tax returns of the individual
members.
Linn Energy, LLC
Operating Statistics
Three Months Ended Percentage
September 30, Increase
2006 2005 (Decrease)
Production:
Gas production (MMcf) 2,265 1,132 *
Oil production (MBbls) 153 6 *
Total production (MMcfe) 3,181 1,165 *
Average daily production
(Mcfe/d) 34,576 12,663 *
Weighted Average Realized Prices:
Gas (Mcf) $10.27 $5.62 82.7%
Oil (Bbl) (A) $55.24 $59.09 (6.5)%
Total (Mcfe) $9.97 $6.77 47.3%
Average Unit Costs per Mcfe
(Non-GAAP):
Operating expenses $1.52 $1.19 27.7%
General and administrative
expenses (B) $0.74 $1.03 (28.2)%
Depreciation, depletion and
amortization $1.78 $1.24 43.5%
Nine Months Ended Percentage
September 30, Increase
2006 2005 (Decrease)
Production:
Gas production (MMcf) 5,977 3,156 89.4%
Oil production (MBbls) 166 14 *
Total production (MMcfe) 6,973 3,240 *
Average daily production
(Mcfe/d) 25,542 11,868 *
Weighted Average Realized Prices:
Gas (Mcf) $10.30 $5.12 *
Oil (Bbl) (A) $55.31 $ 53.00 4.4%
Total (Mcfe) $10.15 $6.27 61.9%
Average Unit Costs per Mcfe
(Non-GAAP):
Operating expenses $1.54 $1.45 6.2%
General and administrative
expenses (B) $0.98 $0.72 36.1%
Depreciation, depletion and
amortization $1.93 $1.25 54.4%
(A) The majority of our oil production, which is in California, is sold
pursuant to a long-term contract at 79% of NYMEX.
(B) This is a non-GAAP performance measure used by our management and is
a quantitative measure used in the natural gas and oil industry. The
measure for the three months ended September 30, 2006 excludes
approximately $4.2 million of unit-based compensation expense
primarily resulting from January 2006 awards to certain executive
officers in connection with our IPO. The measure for the nine months
ended September 30, 2006 excludes approximately $2.0 million of
bonuses paid to certain executive officers in connection with our IPO
and $14.1 million of unit-based compensation expense. General and
administrative expenses including these amounts were $2.05 per Mcfe
for the three months ended September 30, 2006 and $3.29 per Mcfe for
the nine months ended September 30, 2006.
* Amount is greater than 100%, therefore is not meaningful.
Linn Energy, LLC
Condensed Consolidated Statements of Operations (Unaudited)
Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
(in thousands, except per unit amounts)
Revenues:
Oil and gas sales $23,506 $10,407 $53,410 $24,408
Realized gain (loss)
on oil and gas
derivatives 8,198 (29,058) 17,361 (45,822)
Unrealized gain (loss)
on oil and gas
derivatives 49,198 (21,405) 77,176 (26,788)
Natural gas marketing
income 1,090 1,618 3,654 3,087
Other income 265 20 758 158
82,257 (38,418) 152,359 (44,957)
Expenses:
Operating expenses 4,845 1,386 10,772 4,691
Natural gas marketing
expense 954 1,768 3,126 3,162
General and
administrative expenses 6,536 1,197 22,934 2,345
Depreciation, depletion
and amortization 5,654 1,448 13,470 4,035
17,989 5,799 50,302 14,233
64,268 (44,217) 102,057 (59,190)
Other income and
(expenses) (11,211) (988) (16,858) (3,690)
Income (loss) before
income taxes 53,057 (45,205) 85,199 (62,880)
Income tax benefit
(provision) --- (385) 74 (385)
Net income (loss) $53,057 $(45,590) $85,273 $(63,265)
Net income (loss) per
unit - basic $1.92 $(2.22) $3.14 $(3.08)
Net income (loss) per
unit - diluted $1.89 $(2.22) $3.12 $(3.08)
Linn Energy, LLC
Selected Balance Sheet Data
September 30, December 31,
2006 2005
(Unaudited)
(in thousands)
Assets
Total current assets $54,861 $34,733
Natural gas and oil properties and
related equipment, net 731,346 239,293
Property and equipment, net 11,297 2,525
Other assets 46,111 2,993
Total assets $843,615 $279,544
Liabilities and Unitholders'
Capital (Deficit)
Total current liabilities $13,249 $86,058
Credit facility 404,257 206,119
Subordinated bridge loan 247,275 ---
Other long-term liabilities 22,026 34,198
Total liabilities 686,807 326,375
Unitholders' capital (deficit) 156,808 (46,831)
Total liabilities and unitholders' capital
(deficit) $843,615 $279,544
Linn Energy, LLC
Cash Flow Data (Unaudited)
Nine months ended
September 30,
2006 2005
(in thousands)
Net cash provided by (used in) operating
activities $7,984 $(34,381)
Net cash used in investing activities (509,085) (28,444)
Net cash provided by financing activities 491,822 63,614
Net increase (decrease) in cash (9,279) 789
Cash and cash equivalents:
Beginning 11,041 2,188
Ending $1,762 $2,977
Linn Energy, LLC
Revised Guidance Table
Q4 2006E FY 2006E
Net production (A)
Natural gas (MMcf) 2,700 - 3,000 8,700 - 9,000
Oil (MBbls) 230 - 270 400 - 440
Total (MMcfe) 4,080 - 4,620 11,100 - 11,640
Average daily production (MMcfe/d) 44.3 - 50.2 30.4 - 31.9
Other revenue (B) $900 - $1,100 $2,200 - $2,400
% hedged
Natural gas:
% hedged (including puts) (C) 94% - 104% 99% - 102%
% hedged (excluding puts) 88% - 97% 91% - 94%
Oil:
% hedged (including puts) 54% - 63% 42% - 47%
% hedged (excluding puts) 41% - 48% 34% - 38%
% of oil revenue interest hedged (D) 66% - 78% 52% - 57%
Expenses ($ in thousands)
Operating expenses:
LOE and other $4,700 - $5,200 $12,200 - $12,500
Production taxes 600 - 800 3,900 - 4,300
Total operating expenses $5,300 - $6,000 $16,100 - $16,800
General and administrative
expenses (E) $3,500 - $4,500 $10,300 - $11,350
Interest expense (F) $8,500 - $9,500 $25,000 - $26,000
Drilling and development
capital expenditures ($ in thousands)
Maintenance $3,250 $13,600
Growth 7,250 30,400
Total drilling and development capex $10,500 $44,000
Appalachian drilling ($ in thousands)
Wells drilled 26 153
Average cost per operated well $250 - $260 $250 - $260
Natural gas hedging summary (C)
Swaps:
Volume (MMMBtu) 2,625 8,162
Price ($/MMBtu) $9.18 $9.24
Puts:
Volume (MMMBtu) 184 730
Price ($/MMBtu) $8.83 $8.83
Total:
Volume (MMMBtu) 2,809 8,892
Price ($/MMBtu) $9.16 $9.21
Oil hedging summary (A) (D)
Swaps:
Volume (MBbls) 110 150
Price ($/Bbl) $77.68 $77.32
Puts:
Volume (MBbls) 36 36
Price ($/Bbl) $75.00 $75.00
Total:
Volume (MBbls) 146 186
Price ($/Bbl) $77.02 $76.87
FY 2007E
Net production (A)
Natural gas (MMcf) 12,500 - 13,500
Oil (MBbls) 850 - 1,050
Total (MMcfe) 17,600 - 19,800
Average daily production (MMcfe/d) 48.2 - 54.2
Other revenue (B) $3,500 - $4,500
% hedged
Natural gas:
% hedged (including puts) (C) 91% - 98%
% hedged (excluding puts) 66% - 72%
Oil:
% hedged (including puts) 67% - 82%
% hedged (excluding puts) 48% - 59%
% of oil revenue interest hedged (D) 82% - 101%
Expenses ($ in thousands)
Operating expenses:
LOE and other $17,000 - $18,000
Production taxes 5,000 - 6,000
Total operating expenses $22,000 - $24,000
General and administrative expenses
(E) $10,000 - $11,000
Interest expense (F) $27,000 - $29,000
Drilling and development
capital expenditures ($ in thousands)
Maintenance $17,000
Growth 38,000
Total drilling and development capex $55,000
Appalachian drilling ($ in thousands)
Wells drilled 161
Average cost per operated well $250 - $260
Natural gas hedging summary (C)
Swaps:
Volume (MMMBtu) 8,968
Price ($/MMBtu) $8.72
Puts:
Volume (MMMBtu) 3,296
Price ($/MMBtu) $9.22
Total:
Volume (MMMBtu) 12,264
Price ($/MMBtu) $8.85
Oil hedging summary (A) (D)
Swaps:
Volume (MBbls) 500
Price ($/Bbl) $75.83
Puts:
Volume (MBbls) 200
Price ($/Bbl) $75.00
Total:
Volume (MBbls) 700
Price ($/Bbl) $75.60
Notes to Revised Guidance Table:
(A) The amount for FY 2006E reflects production for the partial periods
beginning from August 1, 2006 for the Blacksand acquisition and
September 1, 2006 for the Kaiser-Francis acquisition.
(B) Includes sales of propane and electricity attributable to the
Blacksand acquisition and natural gas marketing and other income.
(C) Linn Energy's natural gas production in Appalachia has a high Btu
content, resulting in a premium to NYMEX natural gas prices. The
Company hedges production based on Btu content.
(D) The majority of our oil production, which is in California, is sold
at approximately 79% of NYMEX under a long-term contract. We also
typically receive a premium of $1.75-$2.00 per barrel based on higher
API gravity.
(E) The amount for FY 2006E excludes the first quarter of 2006 expense of
approximately $2.0 million of one-time cash bonuses paid in
connection with the IPO. Amounts for all periods exclude unit-based
compensation, which represents a non-cash charge based on equity-
related compensation.
(F) Interest expense excludes amortization of deferred financing costs.
Amounts reflect full repayment of $250.0 million bridge facility,
$53.0 million of borrowings under credit facility and accrued
interest of approximately $2.0 million during October 2006 with
proceeds from the sale of $305.0 million of additional equity
securities to certain third party investors.
These estimates are meant to provide guidance only and are subject to revision as the operating environment of the Company changes.
Linn Energy, LLC
Revised Hedging Summary
FY FY FY FY FY
2006E 2007E 2008E 2009E 2010E
Natural gas hedging
summary (A) (B)
Swaps:
Volume (MMMBtu) 8,162 8,968 10,264 8,005 ---
Price ($/MMBtu) $9.24 $8.72 $8.37 $7.89 $---
Puts:
Volume (MMMBtu) 730 3,296 2,013 --- ---
Price ($/MMBtu) $8.83 $9.22 $9.50 $--- $---
Total:
Volume (MMMBtu) 8,892 12,264 12,277 8,005 ---
Price ($/MMBtu) $9.21 $8.85 $8.56 $7.89 $---
Oil hedging summary (A) (C)
Swaps:
Volume (MBbls) 150 500 500 500 500
Price ($/Bbl) $77.32 $75.83 $75.83 $75.83 $75.83
Puts:
Volume (MBbls) 36 200 200 200 200
Price ($/Bbl) $75.00 $75.00 $75.00 $75.00 $75.00
Total:
Volume (MBbls) 186 700 700 700 700
Price ($/Bbl) $76.87 $75.60 $75.60 $75.60 $75.60
Notes to Revised Hedging Summary:
(A) Reflects open and closed hedge positions for all periods presented.
(B) Linn Energy's natural gas production in Appalachia has a high Btu
content, resulting in a premium to NYMEX natural gas prices. The
Company hedges production based on Btu content.
(C) The majority of our oil production, which is in California, is sold
at approximately 79% of NYMEX under a long-term contract. We also
typically receive a premium of $1.75-$2.00 per barrel based on higher
API gravity.