UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 20152016
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
forFor the transition period from _______________ to _______________
Commission File Number: 000-51719
linnlogoa16.jpg
LINN ENERGY, LLC
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
65-1177591
(IRSI.R.S. Employer
Identification No.)
600 Travis Suite 5100
Houston, Texas
(Address of principal executive offices)
77002
(Zip Code)
(281) 840-4000
(Registrant’s telephone number, including area code)
600 Travis, Suite 5100
Houston, Texas 77002
(Former address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,”filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x     Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company ¨x




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of October 31, 2015,2016, there were 355,039,816355,032,380 units outstanding.
 



TABLE OF CONTENTS
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i

Table of Contents

GLOSSARY OF TERMS
As commonly used in the oil and natural gas industry and as used in this Quarterly Report on Form 10-Q, the following terms have the following meanings:
Bbl. One stock tank barrel or 42 United States gallons liquid volume.
Bcf. One billion cubic feet.
Bcfe. One billion cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
Btu. One British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees Fahrenheit.
MBbls. One thousand barrels of oil or other liquid hydrocarbons.
MBbls/d. MBbls per day.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
MMBbls. One million barrels of oil or other liquid hydrocarbons.
MMBtu. One million British thermal units.
MMcf. One million cubic feet.
MMcf/d. MMcf per day.
MMcfe. One million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
MMcfe/d. MMcfe per day.
MMMBtu. One billion British thermal units.
NGL. Natural gas liquids, which are the hydrocarbon liquids contained within natural gas.

ii

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2015
 December 31,
2014
September 30,
2016
 December 31,
2015
(in thousands,
except unit amounts)
(in thousands,
except unit amounts)
ASSETS  
Current assets:      
Cash and cash equivalents$344,806
 $1,809
$800,507
 $2,168
Accounts receivable – trade, net271,156
 471,684
213,108
 216,556
Derivative instruments1,132,164
 1,077,142
1,447
 1,220,230
Other current assets112,222
 155,955
121,092
 95,593
Total current assets1,860,348
 1,706,590
1,136,154
 1,534,547
      
Noncurrent assets:      
Oil and natural gas properties (successful efforts method)18,061,991
 18,068,900
18,193,256
 18,121,155
Less accumulated depletion and amortization(7,953,397) (4,867,682)(12,676,972) (11,097,492)
10,108,594
 13,201,218
5,516,284
 7,023,663
      
Other property and equipment713,783
 669,149
742,264
 708,711
Less accumulated depreciation(187,383) (144,282)(232,245) (195,661)
526,400
 524,867
510,019
 513,050
      
Derivative instruments721,733
 848,097

 566,401
Restricted cash257,043
 6,225
205,204
 257,363
Other noncurrent assets104,351
 136,512
35,287
 33,234
1,083,127
 990,834
240,491
 856,998
Total noncurrent assets11,718,121
 14,716,919
6,266,794
 8,393,711
Total assets$13,578,469
 $16,423,509
$7,402,948
 $9,928,258
      
LIABILITIES AND UNITHOLDERS’ CAPITAL   
LIABILITIES AND UNITHOLDERS’ DEFICIT   
Current liabilities:      
Accounts payable and accrued expenses$568,349
 $814,809
$363,003
 $455,374
Derivative instruments1,462
 
1,776
 2,241
Current portion of long-term debt, net2,828,848
 3,714,693
Other accrued liabilities182,178
 167,736
46,299
 119,593
Total current liabilities751,989
 982,545
3,239,926
 4,291,901
      
Noncurrent liabilities:   
Credit facilities3,478,175
 2,968,175
Term loan500,000
 500,000
Senior notes, net6,050,101
 6,827,634
Derivative instruments743
 684
1,199
 857
Long-term debt, net
 5,292,676
Other noncurrent liabilities603,156
 600,866
571,123
 611,725
Total noncurrent liabilities10,632,175
 10,897,359
Liabilities subject to compromise5,173,059
 
      
Commitments and contingencies (Note 10)

 



 

      
Unitholders’ capital:   
355,050,314 units and 331,974,913 units issued and outstanding at September 30, 2015, and December 31, 2014, respectively5,334,115
 5,395,811
Unitholders’ deficit:   
355,142,363 units and 355,017,428 units issued and outstanding at September 30, 2016, and December 31, 2015, respectively5,367,277
 5,343,116
Accumulated deficit(3,139,810) (852,206)(6,949,636) (5,612,017)
2,194,305
 4,543,605
(1,582,359) (268,901)
Total liabilities and unitholders’ capital$13,578,469
 $16,423,509
Total liabilities and unitholders’ deficit$7,402,948
 $9,928,258
The accompanying notes are an integral part of these condensed consolidated financial statements.

1


LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2015 2014 2015 20142016 2015 2016 2015
(in thousands, except per unit amounts)(in thousands, except per unit amounts)
Revenues and other:              
Oil, natural gas and natural gas liquids sales$427,245
 $937,458
 $1,374,233
 $2,844,185
$360,143
 $427,245
 $959,715
 $1,374,233
Gains (losses) on oil and natural gas derivatives549,029
 451,702
 782,622
 (198,579)274
 549,029
 (72,533) 782,622
Marketing revenues15,723
 39,836
 60,200
 100,655
18,352
 15,723
 47,177
 60,200
Other revenues6,307
 6,119
 19,624
 19,392
6,896
 6,307
 21,468
 19,624
998,304
 1,435,115
 2,236,679
 2,765,653
385,665
 998,304
 955,827
 2,236,679
Expenses:              
Lease operating expenses154,086
 191,630
 467,759
 570,564
117,470
 154,086
 370,658
 467,759
Transportation expenses54,915
 53,412
 164,250
 143,896
49,630
 54,915
 156,590
 164,250
Marketing expenses9,359
 31,574
 47,359
 75,920
12,191
 9,359
 35,784
 47,359
General and administrative expenses60,113
 75,384
 237,731
 221,518
50,202
 60,113
 196,377
 237,731
Exploration costs3,072
 7,850
 4,032
 10,492
4
 3,072
 2,745
 4,032
Depreciation, depletion and amortization207,218
 290,287
 637,964
 832,523
142,448
 207,218
 449,677
 637,964
Impairment of long-lived assets2,255,080
 603,250
 2,787,697
 603,250
41,728
 2,255,080
 1,195,632
 2,787,697
Taxes, other than income taxes46,238
 66,770
 158,317
 201,014
15,383
 46,238
 80,297
 158,317
Gains on sale of assets and other, net(166,980) (35,803) (197,263) (27,750)
(Gains) losses on sale of assets and other, net1,940
 (166,980) 5,959
 (197,263)
2,623,101
 1,284,354
 4,307,846
 2,631,427
430,996
 2,623,101
 2,493,719
 4,307,846
Other income and (expenses):              
Interest expense, net of amounts capitalized(138,383) (154,047) (427,584) (422,160)(40,105) (138,383) (213,758) (427,584)
Gain on extinguishment of debt197,741
 
 213,527
 

 197,741
 
 213,527
Other, net(1,701) (1,847) (10,060) (6,699)(269) (1,701) (1,437) (10,060)
57,657
 (155,894) (224,117) (428,859)(40,374) 57,657
 (215,195) (224,117)
Reorganization items, net(116,276) 
 418,608
 
Loss before income taxes(1,567,140) (5,133) (2,295,284) (294,633)(201,981) (1,567,140) (1,334,479) (2,295,284)
Income tax expense (benefit)2,177
 (1,033) (7,680) 2,674
(3,616) 2,177
 3,140
 (7,680)
Net loss$(1,569,317) $(4,100) $(2,287,604) $(297,307)$(198,365) $(1,569,317) $(1,337,619) $(2,287,604)
              
Net loss per unit:              
Basic$(4.47) $(0.02) $(6.72) $(0.92)$(0.56) $(4.47) $(3.79) $(6.72)
Diluted$(4.47) $(0.02) $(6.72) $(0.92)$(0.56) $(4.47) $(3.79) $(6.72)
Weighted average units outstanding:              
Basic350,695
 329,168
 340,831
 328,783
352,792
 350,695
 352,606
 340,831
Diluted350,695
 329,168
 340,831
 328,783
352,792
 350,695
 352,606
 340,831
              
Distributions declared per unit$0.313
 $0.725
 $0.938
 $2.175
$
 $0.313
 $
 $0.938
The accompanying notes are an integral part of these condensed consolidated financial statements.

2


LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF UNITHOLDERS’ CAPITALDEFICIT
(Unaudited)
 Units Unitholders’ Capital Accumulated Deficit 
Treasury Units
(at Cost)
 Total Unitholders’ Capital
 (in thousands)
          
December 31, 2014331,975
 $5,395,811
 $(852,206) $
 $4,543,605
Sale of units, net of offering costs of $8,76219,622
 224,665
 
 
 224,665
Issuance of units3,644
 
 
 
 
Cancellation of units(191) (672) 
 672
 
Purchase of units  
 
 (672) (672)
Distributions to unitholders  (323,878) 
 
 (323,878)
Unit-based compensation expenses  47,918
 
 
 47,918
Excess tax benefit from unit-based compensation and other  (9,729) 
 
 (9,729)
Net loss  
 (2,287,604) 
 (2,287,604)
September 30, 2015355,050
 $5,334,115
 $(3,139,810) $
 $2,194,305
 Units Unitholders’ Capital Accumulated Deficit Total Unitholders’ Deficit
 (in thousands)
        
December 31, 2015355,017
 $5,343,116
 $(5,612,017) $(268,901)
Issuance of units125
 
 
 
Unit-based compensation expenses  24,514
 
 24,514
Other  (353) 
 (353)
Net loss  
 (1,337,619) (1,337,619)
September 30, 2016355,142
 $5,367,277
 $(6,949,636) $(1,582,359)
The accompanying notes are an integral part of these condensed consolidated financial statements.

3


LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
Nine Months Ended
September 30,
2015 20142016 2015
(in thousands)(in thousands)
Cash flow from operating activities:      
Net loss$(2,287,604) $(297,307)$(1,337,619) $(2,287,604)
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation, depletion and amortization637,964
 832,523
449,677
 637,964
Impairment of long-lived assets2,787,697
 603,250
1,195,632
 2,787,697
Unit-based compensation expenses47,918
 43,692
24,514
 47,918
Gain on extinguishment of debt(213,527) 

 (213,527)
Amortization and write-off of deferred financing fees23,798
 29,236
12,514
 23,798
Gains on sale of assets and other, net(193,768) (33,135)
(Gains) losses on sale of assets and other, net4,660
 (193,768)
Deferred income taxes(8,263) 2,619
902
 (8,263)
Reorganization items, net(462,965) 
Derivatives activities:      
Total (gains) losses(785,520) 198,579
77,138
 (785,520)
Cash settlements858,368
 (12,507)508,082
 858,368
Cash settlements on canceled derivatives358,536
 
Changes in assets and liabilities:      
(Increase) decrease in accounts receivable – trade, net207,062
 (56,014)(3,750) 207,062
Decrease in other assets2,683
 3,284
(Increase) decrease in other assets(20,286) 2,683
Increase (decrease) in accounts payable and accrued expenses(36,626) 112,235
55,172
 (36,626)
Increase (decrease) in other liabilities(5,413) 9,355
22,985
 (5,413)
Net cash provided by operating activities1,034,769
 1,435,810
885,192
 1,034,769
      
Cash flow from investing activities:      
Acquisition of oil and natural gas properties and joint-venture funding
 (2,601,932)
Development of oil and natural gas properties(503,206) (1,176,478)(142,396) (503,206)
Purchases of other property and equipment(51,529) (50,138)(36,936) (51,529)
Decrease in restricted cash53,418
 
Proceeds from sale of properties and equipment and other364,195
 (7,485)(3,149) 364,195
Net cash used in investing activities(190,540) (3,836,033)(129,063) (190,540)
      
Cash flow from financing activities:      
Proceeds from sale of units233,427
 

 233,427
Proceeds from borrowings1,405,000
 5,300,024
978,500
 1,405,000
Repayments of debt(1,701,909) (2,156,124)(914,911) (1,701,909)
Distributions to unitholders(323,878) (721,235)
 (323,878)
Financing fees and offering costs(8,774) (68,614)(692) (8,774)
Excess tax benefit from unit-based compensation(9,467) 4,031

 (9,467)
Other(95,631) 49,131
(20,687) (95,631)
Net cash provided by (used in) financing activities(501,232) 2,407,213
42,210
 (501,232)
      
Net increase in cash and cash equivalents342,997
 6,990
798,339
 342,997
Cash and cash equivalents:      
Beginning1,809
 52,171
2,168
 1,809
Ending$344,806
 $59,161
$800,507
 $344,806
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
Nature of Business
Linn Energy, LLC (“LINN Energy” or the “Company”) is an independent oil and natural gas company. LINN Energy’s mission is to acquire, develop and maximize cash flow from a growing portfolio of long-life oil and natural gas assets. The Company’s properties are located in eight operating regions in the United States (“U.S.”), in the Rockies, the Hugoton Basin, California, the Mid-Continent, east Texas and north Louisiana (“TexLa”), the Permian Basin, TexLa, South TexasMichigan/Illinois and Michigan/Illinois.south Texas.
Principles of Consolidation and Reporting
The information reported herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under Securities and Exchange Commission (“SEC”) rules and regulations; as such, this report should be read in conjunction with the financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.2015. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year.
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation. Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method.
The reference to “Berry” herein refers to Berry Petroleum Company, LLC, which is an indirect 100% wholly owned subsidiary of LINN Energy. The reference to “LinnCo” herein refers to LinnCo, LLC, which is an affiliate of LINN Energy.
The condensed consolidated financial statements for previous periods include certain reclassifications that were made to conform to current presentation. Such reclassifications have no impact on previously reported net income (loss), unitholders’ capitaldeficit or cash flows.
Bankruptcy Accounting
As discussed further in Note 2, on May 11, 2016 (the “Petition Date”), the Company, certain of the Company’s direct and indirect subsidiaries, and LinnCo (collectively with the Company, the “LINN Debtors”) and Berry (collectively with the LINN Debtors, the “Debtors”), filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). During the pendency of the Chapter 11 proceedings, the Debtors will operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.
The condensed consolidated financial statements have been prepared as if the Company is a going concern and reflect the application of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”). ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in “reorganization items, net” on the Company’s condensed consolidated statements of operations. In addition, prepetition unsecured and under-secured obligations that may be impacted by the bankruptcy reorganization process have been classified as “liabilities subject to compromise” on the Company’s condensed consolidated balance sheet at September 30, 2016. These liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court, although they may be settled for less.
The accompanying condensed consolidated financial statements do not purport to reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the condensed consolidated financial statements do not purport to show: (i) the realizable

5

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

value of assets on a liquidation basis or their availability to satisfy liabilities; (ii) the amount of prepetition liabilities that may be allowed for claims or contingencies, or the status and priority thereof; (iii) the effect on unitholders’ deficit accounts of any changes that may be made to the Company’s capitalization; or (iv) the effect on operations of any changes that may be made to the Company’s business. While operating as debtor-in-possession under Chapter 11 of the Bankruptcy Code, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities in amounts other than those reflected on its condensed consolidated financial statements, subject to the approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business. Further, a plan of reorganization could materially change the amounts and classifications on the Company’s historical condensed consolidated financial statements.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. The estimates that are particularly significant to the financial statements include estimates of the Company’s reserves of oil, natural gas and natural gas liquids (“NGL”), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, fair values of commodity derivatives and fair values of assets acquired and liabilities assumed. As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Any changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Recently Issued Accounting Standards
In April 2015,March 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Components of this ASU will be applied either prospectively, retrospectively or under a modified retrospective basis (as applicable for the respective provision) as of the date of adoption and is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued an ASU that is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. This ASU will be applied retrospectively as of the date of adoption and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years (early adoption permitted). The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements and related disclosures.
In November 2015, the FASB issued an ASU that is intended to simplify the presentation of deferred taxes by requiring that all deferred taxes be classified as noncurrent, presented as a single noncurrent amount for each tax-paying component of an entity. The ASU is effective for fiscal years beginning after December 15, 2016; however, the Company early adopted it on January 1, 2016, on a retrospective basis. The adoption of this ASU resulted in the reclassification of previously-classified net current deferred taxes of approximately $22 million from “other current assets,” as well as previously-classified net noncurrent deferred tax liabilities of approximately $11 million from “other noncurrent liabilities,” to “other noncurrent assets” resulting in net noncurrent deferred taxes of approximately $11 million on the Company’s consolidated balance sheet at December 31, 2015. There was no impact to the consolidated statements of operations.
In April 2015, the FASB issued an ASU that is intended to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented inon the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU will be applied retrospectively as of the date of adoption and is effective for fiscal years beginning after December 15, 2015, and interim periods within those years (early adoption permitted). Adoption of this ASU is expected

56

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

to resultcarrying amount of that debt liability, consistent with debt discounts. The Company adopted this ASU on January 1, 2016, on a retrospective basis. The adoption of this ASU resulted in a decrease tothe reclassification of approximately $37 million of unamortized deferred financing fees (which excludes deferred financing fees associated with the Company’s assets and liabilitiesCredit Facilities, as defined in itsNote 6, which were not reclassified) from an asset to a direct deduction from the carrying amount of the associated debt liability on the consolidated balance sheets, withsheet at December 31, 2015. There was no impact to the consolidated statements of operations.
In August 2014, the FASB issued an ASU that provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter (early adoption permitted). The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements or related disclosures.
In May 2014, the FASB issued an ASU that is intended to improve and converge the financial reporting requirements for revenue from contracts with customers. This ASU will be applied either retrospectively or as a cumulative-effect adjustment as of the date of adoption and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years (early adoption permitted for fiscal years beginning after December 15, 2016, including interim periods within that year). The Company is currently evaluating the impact, if any, of the adoption of this ASU on its consolidated financial statements and related disclosures.
Note 2 – Divestiture, Acquisitions, Exchange of PropertiesChapter 11 Proceedings, Ability to Continue as a Going Concern and Joint-Venture FundingCovenant Violations
Divestiture – 2015Chapter 11 Proceedings
On August 31, 2015,the Petition Date, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors’ Chapter 11 cases are being administered jointly under the caption In re Linn Energy, LLC., et al., Case No. 16‑60040.
The Debtors are operating their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Court has granted certain relief requested by the Debtors, allowing the Company through certain ofto use its wholly owned subsidiaries, completed the sale of its remaining position in Howard County in the Permian Basin. Cash proceeds received from the sale of these properties were approximately $276 million, net of costs to sell of approximately $1 million, and the Company recognized a net gain of approximately $174 million. The gain is included in “gains on sale of assets and other, net” on the condensed consolidated statements of operations. The Company used the net proceeds from the sale to repay a portion of the outstanding indebtedness under the LINN Credit Facility, which included debt initially incurredcash to fund the repurchase of a portion of its senior notes during 2015 (see Note 6).
Acquisitions – 2014
On SeptemberChapter 11 2014,proceedings, pursuant to an agreement with the first lien lenders, and giving the Company completed the acquisition of certain oilauthority to, among other things, continue to pay employee wages and natural gas properties located in the Hugoton Basin from Pioneer Natural Resources Company (“Pioneer”benefits without interruption, to utilize its current cash management system and the acquisition, the “Pioneer Assets Acquisition”) for total consideration of approximately $328 million, which was initially financed with borrowings under the LINN Credit Facility.
On August 29, 2014, the Company completed the acquisition of certain oil and natural gas properties located in five operating regions in the U.S. from subsidiaries of Devon Energy Corporation (“Devon” and the acquisition, the “Devon Assets Acquisition”) for total consideration of approximately $2.1 billion, which was initially financed with proceeds from a bridge loan and borrowings under a short-period term loan.
to make royalty payments. During the third quarterpendency of 2014, the Company usedChapter 11 proceedings, all transactions outside the net proceeds from the issuance of its 6.50% senior notes due May 2019 and 6.50% senior notes due September 2021 to repay the bridge loan in full, and during the fourth quarter of 2014, the Company used the net proceeds from the sales of its Granite Wash properties as well as certain of its Wolfberry properties to repay the short-period term loan in full.
The revenues and expenses related to the Devon Assets Acquisition are included on the Company’s condensed consolidated statements of operations as of August 29, 2014. The following unaudited pro forma financial information presents a summaryordinary course of the Company’s condensed combined resultsbusiness require prior approval of operations for the three monthsBankruptcy Court. For goods and nine months ended September 30, 2014, assumingservices provided following the Devon Assets Acquisition had been completed as of January 1, 2014, including adjustmentsPetition Date, the Company intends to reflect the values assignedpay vendors in full under normal terms.
Bank RSA
Prior to the net assets acquired. Petition Date, on May 10, 2016, the Debtors entered into a restructuring support agreement (“Bank RSA”) with certain holders (“Consenting Bank Creditors”) collectively holding or controlling at least 66.67% by aggregate outstanding principal amounts under (i) the Company’s Sixth Amended and Restated Credit Agreement (“LINN Credit Facility”) and (ii) Berry’s Second Amended and Restated Credit Agreement (“Berry Credit Facility”).
The pro forma financial information has been prepared for informational purposes only and does not purportBank RSA sets forth, subject to represent whatcertain conditions, the actual results of operations would have been had the transaction been completed ascommitment of the date assumed, nor is this information necessarily indicativeConsenting Bank Creditors to support a comprehensive restructuring of future consolidated resultsthe Debtors’ long-term debt. The restructuring transactions contemplated by the Bank RSA will be effectuated through one or more plans of operations. reorganization (“Plan”) filed in the Chapter 11 proceedings.
The pro forma financial information doesBank RSA provides that the Consenting Bank Creditors will support the use of the LINN Debtors’ and Berry’s cash collateral under specified terms and conditions, including adequate protection terms. The Bank RSA obligates the Debtors and the Consenting Bank Creditors to, among other things, support and not give effectinterfere with consummation of the restructuring transactions contemplated by the Bank RSA and, as to the costsConsenting Bank Creditors, vote their claims in favor of any integration activities or benefits thatthe Plan. The Bank RSA may result frombe terminated upon the realizationoccurrence of future cost savings from operating efficiencies, or anycertain events, including the failure to meet specified milestones relating to, among other synergies that may result fromrequirements, the transaction.filing, confirmation and consummation of the Plan, and in the event of certain breaches by the parties under the Bank RSA. The Bank RSA is subject to termination if the effective date of the Plan has not

67

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

occurred within 250 days of the Petition Date. There can be no assurance that the restructuring transactions contemplated by the Bank RSA will be consummated.
Restructuring Support Agreement
On October 7, 2016, the LINN Debtors entered into a restructuring support agreement (“Original LINN RSA”) with (i) certain holders of the Company’s 12.00% senior secured second lien notes due December 2020 (such notes, the “Second Lien Notes,” and such holders, the “Consenting Second Lien Noteholders”) and (ii) certain holders of the Company’s unsecured notes (such notes, the “Unsecured Notes,” and such holders of the Unsecured Notes, the “Consenting Unsecured Noteholders,” and together such Consenting Unsecured Noteholders with the Consenting Second Lien Noteholders, the “Consenting Noteholders”).
On October 21, 2016, the LINN Debtors entered into the First Amended and Restated Restructuring Support Agreement (“LINN RSA”) with (i) certain Consenting Second Lien Noteholders, (ii) certain Consenting Unsecured Noteholders and (iii) certain lenders (the “Consenting LINN Lenders,” and together with the Consenting Noteholders, the “Consenting LINN Creditors”) under the LINN Credit Facility. The LINN RSA amends and restates the Original LINN RSA and replaces the Bank RSA with respect to the terms of the restructuring of the LINN Debtors. The Bank RSA remains in full force and effect with respect to the restructuring of Berry and Linn Acquisition Company, LLC.
The LINN RSA sets forth, subject to certain conditions, the commitment of the LINN Debtors and the Consenting LINN Creditors to support a comprehensive restructuring of the LINN Debtors’ long-term debt (the “Restructuring”). The LINN RSA obligates the LINN Debtors and the Consenting LINN Creditors to, among other things, support and not interfere with consummation of the Restructuring and, as to the Consenting LINN Creditors, vote their claims in favor of the Plan. The LINN RSA may be terminated upon the occurrence of certain events, including the failure to meet specified milestones relating to the filing, confirmation and consummation of the Plan, and in the event of certain breaches by the parties under the LINN RSA. The LINN RSA is subject to termination if the effective date of the Plan has not occurred by March 1, 2017. There can be no assurance that the Restructuring will be consummated.
Magnitude of Potential Claims
On July 11, 2016, the Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. The schedules and statements may be subject to further amendment or modification after filing. Holders of prepetition claims are required to file proofs of claims by the applicable deadline for filing certain proofs of claims in the Debtors’ Chapter 11 cases, which was September 16, 2016, for general claims and is November 7, 2016, for governmental claims. Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process.
Liabilities Subject to Compromise
The Company’s condensed consolidated balance sheet includes amounts classified as “liabilities subject to compromise,” which represent prepetition liabilities that have been allowed, or that the Company anticipates will be allowed, as claims in its Chapter 11 cases. The amounts represent the Company’s current estimate of known or potential obligations to be resolved in connection with the Chapter 11 proceedings. The differences between the liabilities the Company has estimated and the claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material.

8

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The following table summarizes the components of liabilities subject to compromise included on the condensed consolidated balance sheet:
 
Three Months Ended
September 30, 2014
 
Nine Months Ended
September 30, 2014
 (in thousands, except per unit amounts)
    
Total revenues and other$1,509,498
 $3,117,792
Total operating expenses$(1,330,384) $(2,846,361)
Net income (loss)$1,480
 $(251,192)
    
Net income (loss) per unit:   
Basic$
 $(0.78)
Diluted$
 $(0.78)
 September 30, 2016
 (in thousands)
  
Accounts payable and accrued expenses$156,708
Accrued interest payable159,422
Debt4,856,929
Liabilities subject to compromise$5,173,059
Reorganization Items, Net
The pro forma condensed combinedCompany has incurred and is expected to continue to incur significant costs associated with the reorganization. These costs, which are expensed as incurred, are expected to significantly affect the Company’s results of operations includes adjustments to:
Reflect the results of the Devon Assets Acquisition.
Reflect incremental depreciation, depletionoperations. Reorganization items represent costs and amortization expense, using the unit-of-production method related to oil and natural gas properties acquired and an estimated useful life of 10 years for other property and equipment.
Reflect incremental accretion expense related to asset retirement obligations on oil and natural gas properties acquired.
Reflect an increase in interest expense related to incremental debt of $2.3 billion incurred to fund the purchase price.
Reflect incremental amortization of deferred financing feesincome directly associated with debt incurredthe Chapter 11 proceedings since the Petition Date, and also include adjustments to fund the purchase price.
Exclude transaction costs related to the Devon Assets Acquisition included in the historical statements of operations as they reflect nonrecurring charges not expected to have a continuing impact on the combined results.
Exchange of Properties – 2014
On August 15, 2014, the Company, through two of its wholly owned subsidiaries, completed the trade of a portion of its Permian Basin properties to Exxon Mobil Corporation and its affiliates, including its wholly owned subsidiary XTO Energy Inc., in exchange for properties in the Hugoton Basin. The noncash exchange was accounted for at fair value and the Company recognized a net gain of approximately $45 million, including costs to sell of approximately $3 million. The gain is equal to the difference between the carrying value andof certain liabilities subject to compromise at their estimated allowed claim amounts, as such adjustments are determined.
The following table summarizes the fair valuecomponents of the assets exchanged less costs to sell, and isreorganization items included in “gains on sale of assets and other, net” on the condensed consolidated statements of operations. The fair value measurements were based on inputs that are not observable and therefore represent Level 3 inputsoperations:
 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
 (in thousands)
    
Legal and other professional advisory fees$(25,604) $(46,114)
Unamortized deferred financing fees, discounts and premiums
 (41,122)
Gain related to interest payable on the 12.00% senior secured second lien notes due December 2020 (1)

 551,000
Terminated contracts(92,957) (47,848)
Other2,285
 2,692
Reorganization items, net$(116,276) $418,608
(1)
Represents a noncash gain on the write-off of postpetition contractual interest through maturity, recorded to reflect the carrying value of the liability subject to compromise at its estimated allowed claim amount.
Rejection of Executory Contracts
Subject to certain exceptions, under the fair value hierarchy.Bankruptcy Code, the Debtors may assume, assign or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and satisfaction of certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a prepetition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach. Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Debtors’ estate for damages. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with any of the Debtors in this Quarterly Report on Form 10-Q, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the applicable Debtor, is qualified by any overriding
Joint-Venture Funding
9

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS2014Continued
During the first quarter of 2014,(Unaudited)

rejection rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto.
Effect of Filing on Creditors and Unitholders
Subject to certain exceptions, under the Bankruptcy Code, the filing of Bankruptcy Petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ prepetition liabilities are subject to settlement under the Bankruptcy Code. Although the filing of Bankruptcy Petitions triggered defaults on the Debtors’ debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. The Company did not record interest expense on its Second Lien Notes or senior notes for the three months ended September 30, 2016, or for the period from May 12, 2016, through September 30, 2016. For those periods, unrecorded contractual interest was approximately $100 million and $154 million, respectively.
Under the Bankruptcy Code, unless creditors agree otherwise, prepetition liabilities and postpetition liabilities must be satisfied in full before the holders of the Company’s existing common units representing limited liability company interests (“units”) are entitled to receive any settlement or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or unitholders, if any, will not be determined until confirmation and implementation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 proceedings to each of these constituencies or what types or amounts of settlements, if any, they will receive. A plan of reorganization could result in holders of the Debtors’ liabilities and/or units receiving no settlement on account of their interests and cancellation of their holdings.
Process for Plan of Reorganization
In order to successfully exit bankruptcy, the Debtors will need to propose, and obtain confirmation by the Bankruptcy Court of, a Plan that satisfies the requirements of the Bankruptcy Code. A Plan would, among other things, resolve the Debtors’ prepetition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to exit from bankruptcy.
In addition to being voted on by holders of impaired claims and equity interests, a Plan must satisfy certain requirements of the Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in order to become effective. A Plan would be accepted by holders of claims against and equity interests in the Debtors if (i) at least one-half in number and two-thirds in dollar amount of claims actually voting in each class of claims impaired by the Plan have voted to accept the Plan and (ii) at least two-thirds in amount of equity interests impaired by the Plan actually voting has voted to accept the Plan. A class of claims or equity interests that does not receive or retain any property under the Plan on account of such claims or interests is deemed to have voted to reject the Plan.
Under certain circumstances set forth in Section 1129(b) of the Bankruptcy Code, the Bankruptcy Court may confirm a Plan even if such Plan has not been accepted by all impaired classes of claims and equity interests. The precise requirements and evidentiary showing for confirming a Plan notwithstanding its rejection by one or more impaired classes of claims or equity interests depends upon a number of factors, including the status and seniority of the claims or equity interests in the rejecting class (i.e., unsecured or secured claims, subordinated or senior claims). Generally, with respect to units, a Plan may be “crammed down” even if the unitholders receive no recovery if the proponent of the Plan demonstrates that (1) no class junior to the units are receiving or retaining property under the Plan and (2) no class of claims or interests senior to the units are being paid approximately $25 million, including interest,more than in full.
On October 21, 2016, the Debtors filed a proposed Plan with the Bankruptcy Court.
Ability to completeContinue as a Going Concern
Continued low commodity prices have resulted in significantly lower levels of cash flow from operating activities and have limited the total funding commitmentCompany’s ability to access the capital markets. In addition, each of $400 millionthe Company’s Credit Facilities is subject to scheduled redeterminations of its borrowing base, semi-annually, based primarily on reserve reports using lender commodity

10

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

price expectations at such time. The lenders under the Credit Facilities agreed to defer the April 2016 borrowing base redeterminations to May 11, 2016. Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs, along with the termination of the Company’s hedges, were expected to adversely impact upcoming redeterminations and have a significant negative impact on the Company’s liquidity. The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facilities, its Second Lien Notes and its senior notes.
The significant risks and uncertainties related to the joint-venture agreement itCompany’s liquidity and Chapter 11 proceedings described above raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. If the Company cannot continue as a going concern, adjustments to the carrying values and classification of its assets and liabilities and the reported amounts of income and expenses could be required and could be material.
In order to decrease the Company’s level of indebtedness and maintain the Company’s liquidity at levels sufficient to meet its commitments, the Company undertook a number of actions, including minimizing capital expenditures and further reducing its recurring operating expenses. Despite taking these actions, the Company did not have sufficient liquidity to satisfy its debt service obligations, meet other financial obligations and comply with its debt covenants. As a result, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code.
Covenant Violations
The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facilities, its Second Lien Notes and its senior notes. Additionally, other events of default, including cross-defaults, are present, including the failure to make interest payments on the Company’s Second Lien Notes and senior notes, as well as the receipt of a going concern explanatory paragraph from the Company’s independent registered public accounting firm on the Company’s consolidated financial statements for the year ended December 31, 2015. Under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of an event of default. See Note 6 for additional details about the Company’s debt.
Credit Facilities
The Company’s Credit Facilities contain a requirement to deliver audited consolidated financial statements without a going concern or like qualification or exception. Consequently, the filing of the Company’s 2015 Annual Report on Form 10-K which included such explanatory paragraph resulted in a default under the LINN Credit Facility as of the filing date, March 15, 2016, subject to a 30 day grace period.
On April 12, 2016, the Company entered into amendments to both the LINN Credit Facility and the Berry Credit Facility. The amendments provided for, among other things, an agreement that (i) certain events would not become defaults or events of default until May 11, 2016, (ii) the borrowing bases would remain constant until May 11, 2016, unless reduced as a result of swap agreement terminations or collateral sales and (iii) the Company, the administrative agent and the lenders would negotiate in good faith the terms of a restructuring support agreement in furtherance of a restructuring of the capital structure of the Company and its subsidiaries. In addition, the amendment to the Berry Credit Facility provided Berry with an affiliateaccess to previously restricted cash of Anadarko Petroleum Corporation (“Anadarko”)$45 million in order to fund ordinary course operations.
As a condition to closing the amendments, in April 2012.2016, (a) the Company made a $100 million permanent repayment of a portion of the borrowings outstanding under the LINN Credit Facility and (b) the Company and certain of its subsidiaries provided control agreements over certain deposit accounts.
Pursuant to the terms of the amendment to the LINN Credit Facility and as a result of the execution of the Bank RSA, in May 2016, the Company made a $350 million permanent repayment of a portion of the borrowings outstanding under the LINN Credit Facility.

11

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the Credit Facilities. However, under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of the default.
Second Lien Notes
The indenture governing the Second Lien Notes (“Second Lien Indenture”) required the Company to deliver mortgages by February 18, 2016, subject to a 45 day grace period. The Company elected to exercise its right to the grace period, which resulted in the Company being in default under the Second Lien Indenture.
On April 4, 2016, the Company entered into a settlement agreement with certain holders of the Second Lien Notes and agreed to deliver, and make arrangements for recordation of, the mortgages. The Company has since delivered and made arrangements for recordation of the mortgages.
The settlement agreement required the parties to commence good faith negotiations with each other regarding the terms of a potential comprehensive and consensual restructuring, including a potential restructuring under a Chapter 11 plan of reorganization. The settlement agreement provided that in the event the parties were unable to reach agreement on the terms of a consensual restructuring on or before the commencement of such Chapter 11 proceedings (or such later date as mutually agreed to by the parties), the parties would support entry by the Bankruptcy Court of a settlement order that, among other things, (i) approves the issuance of additional notes, in the principal amount of $1.0 billion plus certain accrued interest, on a proportionate basis to existing holders of the Second Lien Notes and (ii) releases the mortgages and other collateral upon the issuance of the additional notes (the “Settlement Order”).
The settlement agreement will terminate upon, among other events, entry by the Bankruptcy Court of a final, non-appealable order denying the Company’s motion seeking entry of the Settlement Order.
The Company failed to make an interest payment on its Second Lien Notes of approximately $68 million due June 15, 2016.
The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the Second Lien Indenture. However, under the Bankruptcy Code, holders of the Second Lien Notes are stayed from taking any action against the Company as a result of the default.
Senior Notes
The Company deferred making interest payments totaling approximately $60 million due March 15, 2016, including approximately $30 million on LINN Energy’s 7.75% senior notes due February 2021, approximately $12 million on LINN Energy’s 6.50% senior notes due September 2021 and approximately $18 million on Berry’s 6.375% senior notes due September 2022, which resulted in the Company being in default under these senior notes. The indentures governing each of the applicable series of notes provided the Company a 30 day grace period to make the interest payments.
On April 14, 2016, within the 30 day interest payment grace period provided for in the indentures governing the notes, the Company and Berry made interest payments of approximately $60 million in satisfaction of their respective obligations.
The Company failed to make interest payments due on its senior notes subsequent to April 14, 2016.
The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the indentures governing the senior notes. However, under the Bankruptcy Code, holders of the senior notes are stayed from taking any action against the Company as a result of the default.

12

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Note 3 – Unitholders’ CapitalDeficit
Delisting from Stock Exchange
As a result of the Company’s failure to comply with the NASDAQ Global Select Market (“NASDAQ”) continued listing requirements, on May 24, 2016, the Company’s units began trading over the counter on the OTC Markets Group Inc.’s Pink marketplace under the trading symbol “LINEQ.”
At-the-Market Offering Program
The Company’s Board of Directors hashad authorized the sale of up to $500 million of units under an at-the-market offering program. Salesprogram, with sales of units, if any, willto be made under an equity distribution agreement. No sales were made under the equity distribution agreement by means of ordinary brokers’ transactions, throughduring the facilities of the NASDAQ Global Select Market, any other national securities exchange or facility thereof, a trading facility of a national securities association or an alternate trading system, to or through a market maker or directly on or through an electronic communication network, a “dark pool” or any similar market venue, at market prices, in block transactions, or as

7

LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

otherwise agreed with a sales agent. The Company expects to use the net proceeds from any sale of units for general corporate purposes, which may include, among other things, capital expenditures, acquisitions and the repayment of debt.
nine months ended September 30, 2016. During the nine months ended September 30, 2015, the Company, under its equity distribution agreement, sold 3,621,983 units representing limited liability company interests at an average unit price of $12.37 per unit for net proceeds of approximately $44 million (net of approximately $448,000 in commissions). In connection with the issuance and sale of these units, the Company also incurred professional services expenses of approximately $459,000. The Company used the net proceeds for general corporate purposes, including the open market repurchases of a portion of its senior notes (see Note 6). At September 30, 2015, units totaling approximately $455 million in aggregate offering price remained available to be sold under the agreement.
Public Offering of Units
In May 2015, the Company sold 16,000,000 units representing limited liability company interests in an underwritten public offering at $11.79 per unit ($11.32 per unit, net of underwriting discount) for net proceeds of approximately $181 million (after underwriting discount and offering costs of approximately $8 million). The Company used the net proceeds from the sale of these units to repay a portion of the outstanding indebtedness under the LINN Credit Facility, which included debt initially incurred to fund the open market repurchases of a portion of its senior notes during 2015 (see Note 6).
Forfeiture of Units in Exchange for Cash
In August 2015, in accordance with terms of the separation agreement between the Company and Kolja Rockov dated August 31, 2015, Mr. Rockov agreed to forfeit 191,446 units issued to him under the Company’s equity compensation plan (see Note 5) in exchange for payment of approximately $672,000. These units will remain available for issuance under the Company’s equity compensation plan.
Distributions
Under the Company’s limited liability company agreement, unitholders are entitled to receive a distribution of available cash, which includes cash on hand plus borrowings less any reserves established by the Company’s Board of Directors to provide for the proper conduct of the Company’s business (including reserves for future capital expenditures, including drilling, acquisitions and anticipated future credit needs) or to fund distributions, if any, over the next four quarters. Distributions paid by the Company are presented on the condensed consolidated statement of unitholders’ capital and the condensed consolidated statements of cash flows. Monthly distributions were paid by the Company through September 2015. In October 2015, the Company’s Board of Directors determined to suspend payment of the Company’s distribution. The Company’s Board of Directors will continue to evaluate the Company’s ability to reinstate the distribution.distribution; however, as a result of the Chapter 11 proceedings, the Company cannot pay any distributions without the prior approval of the Bankruptcy Court. Distributions paid by the Company during 2015 are presented on the condensed consolidated statement of cash flows.
Note 4 – Oil and Natural Gas Properties
Oil and Natural Gas Capitalized Costs
Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:
September 30,
2015
 December 31,
2014
September 30,
2016
 December 31,
2015
(in thousands)(in thousands)
Proved properties:      
Leasehold acquisition$13,296,925
 $13,362,642
$13,371,861
 $13,361,171
Development2,909,071
 2,830,841
3,043,225
 2,976,643
Unproved properties1,855,995
 1,875,417
1,778,170
 1,783,341
18,061,991
 18,068,900
18,193,256
 18,121,155
Less accumulated depletion and amortization(7,953,397) (4,867,682)(12,676,972) (11,097,492)
$10,108,594
 $13,201,218
$5,516,284
 $7,023,663

813

LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Impairment of Proved Properties
The Company evaluates the impairment of its proved oil and natural gas properties on a field-by-field basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of proved properties are reduced to fair value when the expected undiscounted future cash flows of proved and risk-adjusted probable and possible reserves are less than net book value. The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.
Based on the analysis described above, the Company recorded the following noncash impairment charges (before and after tax) associated with proved oil and natural gas properties:
Three Months Ended
September 30,
 Nine Months Ended
September 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
2015 2014 2015 20142016 2015 2016 2015
(in thousands)(in thousands)
              
California region$
 $330,311
 $984,288
 $537,511
Mid-Continent region18,586
 366,865
 148,289
 372,568
Rockies region$1,182,337
 $
 $1,182,337
 $
23,142
 1,182,337
 49,819
 1,182,337
California region330,311
 
 537,511
 
TexLa region375,567
 
 408,667
 

 375,567
 
 408,667
Mid-Continent region366,865
 
 372,568
 
Shallow Texas Panhandle Brown Dolomite formation
 
 277,914
 
Hugoton Basin region
 
 
 277,914
South Texas region
 
 8,700
 

 
 
 8,700
Permian Basin region
 603,250
 
 603,250
$2,255,080
 $603,250
 $2,787,697
 $603,250
$41,728
 $2,255,080
 $1,182,396
 $2,787,697
The impairment charges in 2016 were due to a decline in commodity prices, changes in expected capital development and a decline in the Company’s estimates of proved reserves. The impairment charges in 2015 were due to a decline in commodity prices and the Company’s estimates of proved reserves, and the impairment in 2014 was due to the divestiture of certain high valued unproved properties in the Midland Basin in which the expected cash flows were previously included in the impairment assessment for proved oil and natural gas properties.
reserves. The carrying values of the impaired proved properties were reduced to fair value, estimated using inputs characteristic of a Level 3 fair value measurement. The impairment charges are included in “impairment of long-lived assets” on the condensed consolidated statements of operations.
Impairment of Unproved Properties
The Company evaluates the impairment of its unproved oil and natural gas properties whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of unproved properties are reduced to fair value based on management’s experience in similar situations and other factors such as the lease terms of the properties and the relative proportion of such properties on which proved reserves have been found in the past. For the nine months ended September 30, 2016, the Company recorded noncash impairment charges (before and after tax) of approximately $13 million associated with unproved oil and natural gas properties in California. The Company recorded no impairment charges for unproved properties for the three months ended September 30, 2016, or the nine months ended September 30, 2015.
The impairment charges in 2016 were due to a decline in commodity prices and changes in expected capital development. The carrying values of the impaired unproved properties were reduced to fair value, estimated using inputs characteristic of a Level 3 fair value measurement. The impairment charges are included in “impairment of long-lived assets” on the condensed consolidated statement of operations.
Divestiture 2015
On August 31, 2015, the Company, through certain of its wholly owned subsidiaries, completed the sale of its remaining position in Howard County in the Permian Basin. Cash proceeds received from the sale of these properties were approximately

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

$276 million, net of costs to sell of approximately $1 million, and the Company recognized a net gain of approximately $174 million for the three months ended September 30, 2015. The gain is included in “(gains) losses on sale of assets and other, net” on the condensed consolidated statements of operations. The Company used the net proceeds from the sale to repay a portion of the outstanding indebtedness under the LINN Credit Facility.
Note 5 – Unit-Based Compensation
During the nine months ended September 30, 2015, theThe Company granted 3,478,595 restricted units and 697,120 phantom units to employees, primarily as part of its annual review of its employees’ compensation, including executives, with an aggregate fair value of approximately $42 million. The restricted units and phantom units vest over three years. In addition,no unit-based awards during the nine months ended September 30, 2015, the Company granted 400,502 unrestricted units, primarily as part of severance arrangements, with an aggregate fair value of approximately $4 million.2016. A summary of unit-based compensation expenses included on the condensed consolidated statements of operations is presented below:
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2015 2014 2015 2014
 (in thousands)
        
General and administrative expenses$13,040
 $9,445
 $40,717
 $37,164
Lease operating expenses1,167
 1,664
 7,201
 6,528
Total unit-based compensation expenses$14,207
 $11,109
 $47,918
 $43,692
Income tax benefit$5,250
 $4,105
 $17,706
 $16,144

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)


 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2016 2015 2016 2015
 (in thousands)
        
General and administrative expenses$4,832
 $13,040
 $19,238
 $40,717
Lease operating expenses1,129
 1,167
 5,276
 7,201
Total unit-based compensation expenses$5,961
 $14,207
 $24,514
 $47,918
Income tax benefit$2,203
 $5,250
 $9,058
 $17,706
Cash-Based Performance Unit Awards
In January 2015, the Company also granted 567,320 performance units (the maximum number of units available to be earned) to certain executive officers. The 2015 performance unit awards vest three years from the award date. The vesting of these units is determined based on the Company’s performance compared to the performance of a predetermined group of peer companies over a specified performance period, and the value of vested units is to be paid in cash. To date, no performance units have vested and no amounts have been paid to settle any such awards. Performance unit awards that are settled in cash are recorded as a liability with the changes in fair value recognized over the vesting period. Based on the performance criteria, there was no liability recorded for these performance unit awards at September 30, 2015.2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Note 6 – Debt
The following summarizes the Company’s outstanding debt:
September 30,
2015
 December 31, 2014
September 30,
2016
 December 31, 2015
(in thousands, except percentages)(in thousands, except percentages)
      
LINN credit facility (1)
$2,305,000
 $1,795,000
$1,654,745
 $2,215,000
Berry credit facility (2)
1,173,175
 1,173,175
891,259
 873,175
Term loan (3)(2)
500,000
 500,000
284,241
 500,000
6.50% senior notes due May 20191,159,215
 1,200,000
562,234
 562,234
6.25% senior notes due November 20191,483,928
 1,800,000
581,402
 581,402
8.625% senior notes due April 20201,123,483
 1,300,000
718,596
 718,596
6.75% Berry senior notes due November 2020261,100
 299,970
261,100
 261,100
12.00% senior secured second lien notes due December 2020 (3)
1,000,000
 1,000,000
Interest payable on senior secured second lien notes due December 2020 (3)

 608,333
7.75% senior notes due February 2021963,774
 1,000,000
779,474
 779,474
6.50% senior notes due September 2021502,010
 650,000
381,423
 381,423
6.375% Berry senior notes due September 2022572,700
 599,163
572,700
 572,700
Net unamortized discounts and premiums(16,109) (21,499)
Net unamortized discounts and premiums (4)

 (8,694)
Net unamortized deferred financing fees (4)
(1,397) (37,374)
Total debt, net10,028,276
 10,295,809
7,685,777
 9,007,369
Less current maturities
 
Total long-term debt, net$10,028,276
 $10,295,809
Less current portion, net (5)
(2,828,848) (3,714,693)
Less liabilities subject to compromise (6)
(4,856,929) 
Long-term debt, net$
 $5,292,676
(1) 
Variable interest rates of 2.39%5.25% and 1.92%2.66% at September 30, 2015,2016, and December 31, 2014,2015, respectively.
(2) 
Variable interest rates of 2.71%5.25% and 2.67%3.17% at September 30, 2015,2016, and December 31, 2014,2015, respectively.
(3) 
VariableThe issuance of the Second Lien Notes was accounted for as a troubled debt restructuring, which requires that interest ratespayments on the Second Lien Notes reduce the carrying value of 2.72% and 2.66% at the debt with no interest expense recognized. During the nine months ended September 30, 20152016, $551 million was written off to reorganization items in connection with the filing of the Bankruptcy Petitions. The remaining amount of approximately $57 million was classified as liabilities subject to compromise at September 30, 2016.
(4)
Approximately $41 million in net discounts, premiums and deferred financing fees were written off to reorganization items in connection with the filing of the Bankruptcy Petitions.
,(5)
Due to existing and anticipated covenant violations, the Company’s Credit Facilities and term loan were classified as current at September 30, 2016, and December 31, 2014, respectively.2015. The current portion as of December 31, 2015, also includes approximately $128 million of interest payable on the Second Lien Notes due within one year.
(6)
The Company’s senior notes and Second Lien Notes were classified as liabilities subject to compromise at September 30, 2016.
Fair Value
The Company’s debt is recorded at the carrying amount on the condensed consolidated balance sheets. The carrying amounts of the Company’s credit facilities and term loan approximate fair value because the interest rates are variable and reflective of market rates. The Company uses a market approach to determine the fair value of its senior secured second lien notes and senior notes using estimates based on prices quoted from third-party financial institutions, which is a Level 2 fair value measurement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

 September 30, 2015 December 31, 2014
 Carrying Value Fair Value Carrying Value Fair Value
 (in thousands)
        
Credit facilities$3,478,175
 $3,478,175
 $2,968,175
 $2,968,175
Term loan500,000
 500,000
 500,000
 500,000
Senior notes, net6,050,101
 1,610,642
 6,827,634
 5,703,649
Total debt, net$10,028,276
 $5,588,817
 $10,295,809
 $9,171,824
 September 30, 2016 December 31, 2015
 Carrying Value Fair Value Carrying Value Fair Value
 (in thousands)
        
Senior secured second lien notes$1,000,000
 $466,250
 $1,000,000
 $501,250
Senior notes, net3,856,929
 1,202,887
 3,812,676
 662,179
Credit Facilities
LINN Credit Facility
The Company’s Sixth Amended and Restated Credit Agreement (“LINN Credit Facility”) provides for (1) a senior secured revolving credit facility and (2) a $500 million senior secured term loan, in aggregate subject to the then-effective borrowing base. Borrowing capacity under the revolving credit facility is limited to the lesser of: (i) the then-effective borrowing base reduced by the $500 million term loan and (ii) the maximum commitment amount of $4.0 billion, and was $3.55 billion as of September 30, 2015. The maturity date is April 2019. At September 30, 2015, the borrowing base under the LINN Credit Facility was $4.05 billion (which was reaffirmed in October 2015,2019, subject to conditions described below) and availability under the revolving credit facility was approximately $1.2 billion, which includes reductions for the $500 million term loan and $6 million of outstanding letters of credit.
In October 2015, the Company entered into an amendment to the LINN Credit Facility to provide for, among other things: (i) a “springing maturity” based on the maturity of any outstanding LINN Energy junior lien debt; (ii)debt. At September 30, 2016, the ability to incur up to $4.0Company had approximately $1.7 billion in total borrowings outstanding (including outstanding letters of junior lien debt to accommodate exchangescredit) under the revolving credit facility and approximately $284 million under the term loan, and there was no remaining availability.
See Note 2 for details of the Company’s outstanding unsecured senior notes and Berry Petroleum Company, LLC (“Berry”) senior notes or as additional indebtedness, but such additional indebtedness may not exceed $1.0 billion; (iii) if the Berry Consolidation (defined below) happens on or before January 1, 2016, the abilityamendment to issue up to the $1.0 billion of the additional junior lien debt described in the previous clause (ii) without a corresponding reduction in our borrowing base before the next scheduled redetermination; (iv) a minimum liquidity requirement equal to the greater of $500 million and 15% of the then effective available borrowing base after giving effect to certain redemptions or repurchases of certain debt; (v) a decrease in the covenant requiring the maintenance of an EBITDA to Interest Expense ratio of 2.5 to 1.0, such that the minimum required ratio is decreased to 2.0 to 1.0 from December 31, 2015 through December 31, 2016, to 2.25 to 1.0 from March 31, 2017 through June 30, 2017 and returning to 2.5 to 1.0 thereafter; (vi) the ability to make necessary tax-related distributions or contributions to LinnCo, LLC; (vii) an increase in the mortgage requirement on the total value of the oil and natural gas properties included on our most recent reserve report from 80% to 90%; and (viii) an increase to the applicable margin charged on borrowings under the LINN Credit Facility by 0.25% and an increase in the commitment fee under the LINN Credit Facilityentered into on the average daily unused amount of the maximum commitment amount of the lenders to 0.5% per annum.April 12, 2016.
Redetermination of the borrowing base under the LINN Credit Facility, based primarily on reserve reports using lender commodity price expectations at such time, occurs semi-annually, in April and October.semi-annually. The administrative agent, at the direction of a super-majority of certain of the lenders has the right to request one interim borrowing base redetermination per year. The Company also has the right to request one interim borrowing base redetermination per year, as well as the right to an additional interim redetermination each year in connection with certain acquisitions. Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs, along with the maturity schedule of the Company’s hedges, may impact future redeterminations.
The spring 2015 semi-annual borrowing base redetermination was completed in May 2015, and, as a result of lower commodity prices, the borrowing base under the LINN Credit Facility decreased from $4.5 billionagreed to $4.05 billion. The fall 2015 semi-annual redetermination was completed in October 2015 anddefer the April 2016 borrowing base under the LINN Credit Facility was reaffirmed at $4.05 billion. The borrowing base will automatically decreaseredetermination to $3.6 billion on January 1, 2016, subject to any additional reductions for additional junior lien debt issued since this redetermination, if the following conditions are not met on or before

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

January 1, 2016: (i) the issuance by the Company of at least $250 million of additional junior lien debt; (ii) repayment and extinguishment of the Berry Credit Facility (as defined below); and (iii) the guarantee by Berry of the LINN Credit Facility or the merger or consolidation of Berry with a guarantor under the LINN Credit Facility (collectively, the “Berry Consolidation”). Notwithstanding this, borrowing availability under the LINN Credit Facility will be limited to $3.6 billion (which amount includes the outstanding $500 million term loan) until the earlier of a) January 1, 2016 or b) the date of the Berry Consolidation. 2016.
The Company’s obligations under the LINN Credit Facility as amended, are secured by mortgages on certain of its material subsidiaries’ oil and natural gas properties and other personal property as well as a pledge of all ownership interests in the Company’s direct and indirect material subsidiaries. The Company is required to maintainmaintain: 1) mortgages on properties representing at least 90% of the total value of oil and natural gas properties included on its most recent reserve report.report; 2) a minimum liquidity requirement equal to the greater of $500 million and 15% of the then effective available borrowing base after giving effect to certain redemptions or repurchases of certain debt; and 3) an EBITDA to Interest Expense ratio of at least 2.0 to 1.0 currently, 2.25 to 1.0 from March 31, 2017 through June 30, 2017 and 2.5 to 1.0 thereafter. Additionally, the obligations under the LINN Credit Facility are guaranteed by all of the Company’s material subsidiaries, other than Berry, and are required to be guaranteed by any future material subsidiaries. The Company is in compliance with all financial and other covenants of the LINN Credit Facility.
At the Company’s election, interest on borrowings under the LINN Credit Facility as amended, is determined by reference to either the London Interbank Offered Rate (“LIBOR”) plus an applicable margin between 1.75% and 2.75% per annum (depending on the then-current level of borrowings under the LINN Credit Facility) or the alternate base rate (“ABR”) plus an applicable margin between 0.75% and 1.75% per annum (depending on the then-current level of borrowings under the LINN Credit Facility). Interest is generally payable quarterlymonthly for loans bearing interest based on the ABR and at the end of the applicable interest period for loans bearing interest at the LIBOR. The Company is required to pay a commitment fee to the lenders under the LINN Credit Facility, which accrues at a rate per annum of 0.50% on the average daily unused amount of the maximum commitment amount of the lenders.
The $500 million term loan has a maturity date of April 2019, subject to a “springing maturity” based on the maturity of any outstanding LINN Energy junior lien debt, and incurs interest based on either the LIBOR plus a margin of 2.75% per annum or the ABR plus a margin of 1.75% per annum, at the Company’s election. Interest is generally payable quarterlymonthly for loans bearing interest based on the ABR and at the end of the applicable interest period for loans bearing interest at the LIBOR. The term loan may be repaid at the option of the Company without premium or penalty, subject to breakage costs. While the term loan is outstanding, the Company is required to maintain either: 1) mortgages on properties representing at least 80% of the total value of oil and natural gas properties included on its most recent reserve report, or 2) a Term Loan Collateral Coverage Ratio of at least 2.5 to 1.0. The Term Loan Collateral Coverage Ratio is defined as the ratio of the present value of future cash flows from proved reserves from the currently mortgaged properties to the lesser of: (i) the then-effective borrowing base and (ii) the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

maximum commitment amount and the aggregate amount of the term loan outstanding. The other terms and conditions of the LINN Credit Facility, including the financial and other restrictive covenants set forth therein, are applicable to the term loan.
Berry Credit Facility
Berry’s Second Amended and Restated Credit Agreement (“Berry Credit Facility”) hadprovides for a borrowing base of $1.2 billion,senior secured revolving credit facility, subject to lender commitments, as of September 30, 2015.the then-effective borrowing base. The maturity date is April 2019. At September 30, 2015, lender commitments under2016, the facility were $1.2 billion but there was less than $1Company had approximately $898 million of available borrowing capacity, includingin total borrowings outstanding (including outstanding letters of credit.credit) under the Berry Credit Facility and there was no remaining availability.
In October 2015, Berry entered into anSee Note 2 for details of the amendment to the Berry Credit Facility to provide for, among other things: (i) a springing maturity basedentered into on the maturity of any outstanding Berry junior lien debt; (ii) the ability of Berry to incur junior lien debt to refinance its senior notes or as additional indebtedness, but such additional indebtedness issued may not exceed $500 million outstanding at any one time and is subject to a borrowing base reduction; (iii) a decrease in Berry’s covenant requiring the maintenance of an EBITDA to Interest Expense ratio of 2.5 to 1.0, such that the permissible ratio is decreased to 2.0 to 1.0 from December 31, 2015 through December 31, 2016, to 2.25 to 1.0 from March 31, 2017 through June 30, 2017 and returning to 2.5 to 1.0 thereafter; (iv) an increase in the mortgage requirement on the total value of the oil and natural gas properties included in Berry’s most recent reserve report from 80% to 90%; (v) an increase to the applicable margin charged on borrowings under the Berry Credit Facility by 0.25% and increase the commitment fee under the Berry Credit Facility to 0.5% per annum; and (vi) permission to prepay or exchange Berry’s senior notes with notes issued by LINN Energy.April 12, 2016.

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Redetermination of the borrowing base under the Berry Credit Facility, based primarily on reserve reports using lender commodity price expectations at such time, occurs semi-annually, in April and October. A super-majority of thesemi-annually. The lenders under the Berry Credit Facility and Berry also haveagreed to defer the right to request interim borrowing base redeterminations once between scheduled redeterminations. The spring 2015 semi-annualApril 2016 borrowing base redetermination was completed into May 2015, and, as a result of lower commodity prices, the borrowing base under the Berry Credit Facility decreased from $1.4 billion to $1.2 billion. The fall 2015 semi-annual redetermination was completed in October 2015 and the borrowing base under the Berry Credit Facility decreased from $1.2 billion to $900 million. Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs may impact future redeterminations.
In connection with the reduction in Berry’s borrowing base in October 2015, Berry repaid $300 million of borrowings outstanding under the Berry Credit Facility. In connection with the reduction in Berry’s borrowing base in May 2015, LINN Energy borrowed $250 million under the LINN Credit Facility, which it contributed to Berry to post as restricted cash with Berry’s lenders. As directed by LINN Energy, the $250 million was deposited on Berry’s behalf in a security account with the administrative agent subject to a security control agreement. Berry’s ability to withdraw funds from this account is subject to a concurrent reduction of the borrowing base under the Berry Credit Facility or lender’s consent in connection with a redetermination of such borrowing base. The $250 million may be used to satisfy obligations under the Berry Credit Facility or, subject to restrictions in the indentures governing Berry’s senior notes, may be returned to LINN Energy in the future. The amount is included in “restricted cash” on the condensed consolidated balance sheet.11, 2016.
Berry’s obligations under the Berry Credit Facility as amended, are secured by mortgages on its oil and natural gas properties and other personal property. Berry is required to maintainmaintain: 1) mortgages on properties representing at least 90% of the present value of its oil and natural gas proved reserves. Berry isproperties included on its most recent reserve report, and 2) an EBITDAX to Interest Expense ratio of at least 2.0 to 1.0 currently, 2.25 to 1.0 from March 31, 2017 through June 30, 2017 and 2.5 to 1.0 thereafter. In accordance with the amendment described in compliance with all financial and other covenantsNote 2, the lenders had agreed that the failure to maintain the EBITDAX to Interest Expense ratio would not result in a default or event of the Berry Credit Facility.default until May 11, 2016.
At Berry’s election, interest on borrowings under the Berry Credit Facility as amended, is determined by reference to either the LIBOR plus an applicable margin between 1.75% and 2.75% per annum (depending on the then-current level of borrowings under the Berry Credit Facility) or a Base Rate (as defined in the Berry Credit Facility) plus an applicable margin between 0.75% and 1.75% per annum (depending on the then-current level of borrowings under the Berry Credit Facility). Interest is generally payable quarterlymonthly for loans bearing interest based on the Base Rate and at the end of the applicable interest period for loans bearing interest at the LIBOR. Berry is required to pay a commitment fee to the lenders under the Berry Credit Facility, which accrues at a rate per annum of 0.5%0.50% on the average daily unused amount of the maximum commitment amount of the lenders.
The Company refers to the LINN Credit Facility and the Berry Credit Facility, collectively, as the “Credit Facilities.”
The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the Credit Facilities. However, under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of the default. The automatic stay under the Bankruptcy Code does not apply to letters of credit issued under the prepetition Credit Facilities and third parties may draw on their letters of credit if the terms of a particular letter of credit so provide. During the three months and nine months ended September 30, 2016, approximately $16 million and $20 million, respectively, in letters of credit draws were made from the Berry Credit Facility.
Senior Secured Second Lien Notes Due December 2020
On November 20, 2015, the Company issued $1.0 billion in aggregate principal amount of 12.00% senior secured second lien notes due December 2020 (“Second Lien Notes”) in exchange for approximately $2.0 billion in aggregate principal amount of certain of its outstanding senior notes. The exchanges were accounted for as a troubled debt restructuring (“TDR”). TDR accounting requires that interest payments on the Second Lien Notes reduce the carrying value of the debt with no interest expense recognized.
In connection with the issuance of the Second Lien Notes, the Company entered into a Registration Rights Agreement with each of the holders (collectively, the “Registration Rights Agreements”). Under the Registration Rights Agreements, the Company agreed to use its reasonable efforts to file with the SEC and cause to become effective a registration statement relating to an offer to issue new notes having terms substantially identical to the Second Lien Notes in exchange for outstanding Second Lien Notes within 370 days following the issuance of the Second Lien Notes. In certain circumstances, the Company may be required to file a shelf registration statement to cover resales of the Second Lien Notes. The Company will be obligated

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LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

to file one or more registration statements as described above only if the restrictive legend on the Second Lien Notes has not been removed and the Second Lien Notes are not freely tradable pursuant to Rule 144 under the Securities Act of 1933, as amended, as of the 370th day following the issuance of the Second Lien Notes. If the Company fails to satisfy these obligations, the Company may be required to pay additional interest to holders of the Second Lien Notes under certain circumstances.
Repurchases of Senior Notes
The Company made no repurchases of its senior notes during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, the Company repurchased through privately negotiated transactions and on the open market approximately $783 million of its outstanding senior notes as follows:
6.50% senior notes due May 2019 – $41 million;
6.25% senior notes due November 2019 – $316 million;
8.625% senior notes due April 2020 – $177 million;
6.75% Berry senior notes due November 2020 – $39 million;
7.75% senior notes due February 2021 – $36 million;
6.50% senior notes due September 2021 – $148 million; and
6.375% Berry senior notes due September 2022 – $26 million.
In connection with the repurchases, the Company paid approximately $557 million in cash and recorded a gain on extinguishment of debt of approximately $214 million for the nine months ended September 30, 2015.

Notes Covenants
13

TableThe Second Lien Indenture contains covenants that, among other things, may limit the Company’s ability and the ability of Contents
LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Seniorthe Company’s restricted subsidiaries to: (i) declare or pay distributions on, purchase or redeem the Company’s units or purchase or redeem the Company’s or its restricted subsidiaries’ indebtedness secured by liens junior in priority to liens securing the Second Lien Notes, Covenantsunsecured indebtedness or subordinated indebtedness; (ii) make investments; (iii) incur or guarantee additional indebtedness or issue certain types of equity securities; (iv) create certain liens; (v) sell assets; (vi) consolidate, merge or transfer all or substantially all of the Company’s assets; (vii) enter into agreements that restrict distributions or other payments from the Company’s restricted subsidiaries to the Company; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries.
The Company’s senior notes contain covenants that, among other things, may limit its ability to: (i) pay distributions on, purchase or redeem the Company’s units or redeem its subordinated debt; (ii) make investments; (iii) incur or guarantee additional indebtedness or issue certain types of equity securities; (iv) create certain liens; (v) sell assets; (vi) consolidate, merge or transfer all or substantially all of the Company’s assets; (vii) enter into agreements that restrict distributions or other payments from the Company’s restricted subsidiaries to the Company; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. The Company is in compliance with all financial and other covenants of its senior notes.
Berry’s senior notes contain covenants that, among other things, may limit its ability to: (i) incur or guarantee additional indebtedness; (ii) pay distributions or dividends on Berry’s equity or redeem its subordinated debt; (iii) create certain liens; (iv) enter into agreements that restrict distributions or other payments from Berry’s restricted subsidiaries to Berry; (v) sell assets; (vi) engage in transactions with affiliates; and (vii) consolidate, merge or transfer all or substantially all of Berry’s assets. Berry is in compliance with all financial and other covenants of its senior notes.
In addition, any cash generated by Berry is currently being used by Berry to fund its activities.  ToHistorically, to the extent that Berry generatesgenerated cash in excess of its needs and determinesdetermined to distribute such amounts to LINN Energy, the indentures governing Berry’s senior notes limitlimited the amount it maycould distribute to LINN Energy to the amount available under a “restricted payments basket,” and Berry maycould not distribute any such amounts unless it is permitted by the indentures to incur additional debt pursuant to the consolidated coverage ratio test set forth in the Berry indentures.  Berry’sDuring the pendency of the bankruptcy proceedings, Berry will not distribute cash to LINN Energy using the restricted payments basket may be increased in accordance with the termsbasket.

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LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The filing of the Berry indentures by, amongBankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the Second Lien Indenture and the senior notes. However, under the Bankruptcy Code, holders of the Second Lien Notes and the senior notes are stayed from taking any action against the Company as a result of the default.
Covenant Violations
The Company’s filing of the Bankruptcy Petitions described in Note 2 constituted an event of default that accelerated the Company’s obligations under its Credit Facilities, its Second Lien Notes and its senior notes. Additionally, other things, 50%events of Berry’s future net income, reductions in its indebtednessdefault, including cross-defaults, are present, including the failure to make interest payments on the Company’s Second Lien Notes and restricted investments, and future capital contributions.senior notes, as well as the receipt of a going concern explanatory paragraph from the Company’s independent registered public accounting firm on the Company’s consolidated financial statements for the year ended December 31, 2015. Under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of an event of default.
Note 7 – Derivatives
Commodity Derivatives
TheHistorically, the Company seeks to hedgehas hedged a significant portion of its forecasted production to reduce exposure to fluctuations in the prices of oil and natural gas prices and provide long-term cash flow predictability to manage its business, service debt and, if and when resumed, pay distributions. The current direct NGL hedging market is constrained in terms of price, volume, duration and number of counterparties, which limits the Company’s ability to effectively hedge its NGL production. The Company has also hedgeshedged its exposure to natural gas differentials in certain operating areas but does not currently hedge exposure to oil differentials.
The Company entershas historically entered into commodity hedging transactions primarily in the form of swap contracts that are designed to provide a fixed price and, from time to time, put options that are designed to provide a fixed price floor with the opportunity for upside. The Company enters into these transactions with respect to a portion of its projected production or consumption to provide an economic hedge of the risk related to the future commodity prices received or paid. The Company does not enter into derivative contracts for trading purposes. In connection with the 2013 acquisition of Berry, the Company assumed certain derivative contracts that Berry had entered into prior to the acquisition date, including swap contracts, collars and three-way collars. The Company did not designate any of its contracts as cash flow hedges; therefore, the changes in fair value of these instruments are recorded in current earnings. See Note 8 for fair value disclosures about oil and natural gas commodity derivatives.
The following table presents derivative positions for the period indicated as of September 30, 2016:
 October 1 - December 31, 2016 2017
Natural gas positions:   
Fixed price swaps (NYMEX Henry Hub):   
Hedged volume (MMMBtu)33,580
 83,950
Average price ($/MMBtu)$3.05
 $3.08
Oil positions:   
Fixed price swaps (NYMEX WTI):   
Hedged volume (MBbls)
 730
Average price ($/Bbl)$
 $50.98
In accordance with a Bankruptcy Court order dated August 16, 2016, the Company was authorized to enter into postpetition hedging arrangements. In September 2016, the Company entered into commodity derivative contracts consisting of natural gas swaps for October 2016 through December 2017 and oil swaps for January 2017 through December 2017.
In April 2016 and May 2016, in connection with the Company’s restructuring efforts, LINN Energy canceled (prior to the contract settlement dates) all of its then-outstanding derivative contracts for net proceeds of approximately $1.2 billion. The net proceeds were used to make permanent repayments of a portion of the borrowings outstanding under the LINN Credit Facility.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Also, in May 2016 and July 2016, as a result of the Chapter 11 proceedings, Berry’s counterparties canceled (prior to the contract settlement dates) all of Berry’s then-outstanding derivative contracts for net proceeds of approximately $2 million. The following table summarizes derivative positionsnet proceeds were used to make permanent repayments of a portion of the borrowings outstanding under the Berry Credit Facility.
Excluding settlements on canceled derivatives, the Company had no settlements on commodity derivatives for the periods indicated as of three months ended September 30, 2015:
 October 1 - December 31, 2015 2016 2017 2018
Natural gas positions:       
Fixed price swaps (NYMEX Henry Hub):       
Hedged volume (MMMBtu)29,753
 121,841
 120,122
 36,500
Average price ($/MMBtu)$5.19
 $4.20
 $4.26
 $5.00
Put options (NYMEX Henry Hub):       
Hedged volume (MMMBtu)18,111
 76,269
 66,886
 
Average price ($/MMBtu)$5.00
 $5.00
 $4.88
 $
Oil positions:       
Fixed price swaps (NYMEX WTI): (1)
       
Hedged volume (MBbls)3,890
 11,465
 4,755
 
Average price ($/Bbl)$87.22
 $90.56
 $89.02
 $
Three-way collars (NYMEX WTI):       
Hedged volume (MBbls)276
 
 
 
Short put ($/Bbl)$70.00
 $
 $
 $
Long put ($/Bbl)$90.00
 $
 $
 $
Short call ($/Bbl)$101.62
 $
 $
 $
Put options (NYMEX WTI):       
Hedged volume (MBbls)864
 3,271
 384
 
Average price ($/Bbl)$90.00
 $90.00
 $90.00
 $
Natural gas basis differential positions: (2)
       
Panhandle basis swaps: (3)
       
Hedged volume (MMMBtu)21,970
 59,954
 59,138
 16,425
Hedged differential ($/MMBtu)$(0.33) $(0.32) $(0.33) $(0.33)
NWPL Rockies basis swaps: (3)
       
Hedged volume (MMMBtu)14,479
 65,794
 38,880
 10,804
Hedged differential ($/MMBtu)$(0.23) $(0.24) $(0.19) $(0.19)
MichCon basis swaps: (3)
       
Hedged volume (MMMBtu)2,355
 7,768
 7,437
 2,044
Hedged differential ($/MMBtu)$0.06
 $0.05
 $0.05
 $0.05
Houston Ship Channel basis swaps: (3)
       
Hedged volume (MMMBtu)7,443
 34,364
 36,730
 986
Hedged differential ($/MMBtu)$(0.03) $(0.02) $(0.02) $(0.08)
Permian basis swaps: (3)
       
Hedged volume (MMMBtu)1,279
 4,219
 4,819
 1,314
Hedged differential ($/MMBtu)$(0.21) $(0.20) $(0.20) $(0.20)
SoCal basis swaps: (4)
       
Hedged volume (MMMBtu)8,280
 32,940
 
 
Hedged differential ($/MMBtu)$(0.03) $(0.03) $
 $

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

 October 1 - December 31, 2015 2016 2017 2018
Oil timing differential positions:       
Trade month roll swaps (NYMEX WTI): (5)
       
Hedged volume (MBbls)1,828
 7,446
 6,486
 
Hedged differential ($/Bbl)$0.24
 $0.25
 $0.25
 $
(1)
Includes certain outstanding fixed price oil swaps of approximately 5,384 MBbls which may be extended annually at a price of $100.00 per Bbl2016. Settled derivatives on natural gas production for each of the years ending December 31, 2017, and December 31, 2018, and $90.00 per Bbl for the year ending December 31, 2019, at counterparty election on a designated date in each respective preceding year. The extension for each year is exercisable without respect to the other years.
(2)
Settle on the respective pricing index to hedge basis differential to the NYMEX Henry Hub natural gas price.
(3)
For positions which hedge exposure to differentials in producing areas, the Company receives the NYMEX Henry Hub natural gas price plus the respective spread and pays the specified index price. Cash settlements are made on a net basis.
(4)
For positions which hedge exposure to differentials in consuming areas, the Company pays the NYMEX Henry Hub natural gas price plus the respective spread and receives the specified index price. Cash settlements are made on a net basis.
(5)
The Company hedges the timing risk associated with the sales price of oil in the Mid-Continent, Hugoton Basin and Permian Basin regions. In these regions, the Company generally sells oil for the delivery month at a sales price based on the average NYMEX WTI price during that month, plus an adjustment calculated as a spread between the weighted average prices of the delivery month, the next month and the following month during the period when the delivery month is prompt (the “trade month roll”).
During the nine months ended September 30, 2015,2016, included volumes of 77,734 MMMBtu at an average contract price of $4.50 per MMBtu. Settled derivatives on oil production for the Company entered into commodity derivative contracts consistingnine months ended September 30, 2016, included volumes of natural gas basis swaps for May 2015 through December 2017 to hedge exposure to differentials in certain producing areas, and oil swaps for April 2015 through December 2015. In addition, the Company entered into natural gas basis swaps for May 2015 through December 2016 to hedge exposure to the differential in California, where it consumes natural gas in its heavy oil development operations.
4,331 MBbls at an average contract price of $90.44 per Bbl. Settled derivatives on natural gas production for the three months and nine months ended September 30, 2015, included volumes of 47,864 MMMBtu and 142,031 MMMBtu, respectively, at an average contract price of $5.12 per MMBtu. Settled derivatives on oil production for the three months and nine months ended September 30, 2015, included volumes of 5,060 MBbls and 13,855 MBbls, respectively, at average contract prices of $87.53 per Bbl and $89.86 per Bbl. Settled derivatives on natural gas production for the three months and nine months ended September 30, 2014, included volumes of 44,621 MMMBtu and 132,408 MMMBtu, respectively, at an average contract price of $5.14 per MMBtu. Settled derivatives on oil production for the three months and nine months ended September 30, 2014, included volumes of 6,299 MBbls and 18,690 MBbls, respectively, at an average contract price of $92.39 per Bbl.
The natural gas derivatives are settled based on the closing price of NYMEX Henry Hub natural gas on the last trading day for the delivery month, which occurs on the third business day preceding the delivery month, or the relevant index prices of natural gas published in Inside FERC’s Gas Market Report on the first business day of the delivery month. The oil derivatives are settled based on the average closing price of NYMEX WTI crude oil for each day of the delivery month.

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Balance Sheet Presentation
The Company’s commodity derivatives are presented on a net basis in “derivative instruments” on the condensed consolidated balance sheets. The following summarizes the fair value of derivatives outstanding on a gross basis:
September 30,
2015
 
December 31,
2014
September 30, 2016 
December 31,
2015
(in thousands)(in thousands)
Assets:      
Commodity derivatives$1,887,082
 $2,014,815
$6,451
 $1,812,375
Liabilities:      
Commodity derivatives$35,390
 $90,260
$7,979
 $28,842
By using derivative instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company’s counterparties are current participants or affiliates of participants in its Credit Facilities or were participants or affiliates of participants in its Credit Facilities at the time it originally entered into the derivatives.Facilities. The Credit Facilities are secured by the Company’s oil, natural gas and NGL reserves; therefore, the Company is not required to post any collateral. The Company does not receive collateral from its counterparties. While the Company is in bankruptcy, the Bankruptcy Court’s hedging order governs the provision of collateral securing any commodity derivatives.
The maximum amount of loss due to credit risk that the Company would incur if its counterparties failed completely to perform according to the terms of the contracts, based on the gross fair value of financial instruments, was approximately $1.9 billion$6 million at September 30, 2015.2016. The Company minimizes the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard, or have a guarantee from an affiliate that meets the Company’s minimum credit quality standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Gains (Losses) on Derivatives
A summary of gains and losses on derivatives included on the condensed consolidated statements of operations is presented below:
Three Months Ended
September 30,
 Nine Months Ended
September 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
2015 2014 2015 20142016 2015 2016 2015
(in thousands)(in thousands)
              
Gains (losses) on oil and natural gas derivatives$549,029
 $451,702
 $782,622
 $(198,579)$274
 $549,029
 $(72,533) $782,622
Lease operating expenses (1)
(162) 
 2,898
 
(200) (162) (4,605) 2,898
Total gains (losses) on oil and natural gas derivatives$548,867
 $451,702
 $785,520
 $(198,579)$74
 $548,867
 $(77,138) $785,520
(1) 
Consists of gains and (losses) on derivatives usedentered into in March 2015 to hedge exposure to differentials in consuming areas, which were entered into in March 2015.areas.
For the three months and nine months ended September 30, 2016, the Company received net cash settlements of approximately $93,000 and $867 million, respectively. In addition, during the nine months ended September 30, 2016, approximately $841 million in settlements (primarily in connection with the April 2016 and May 2016 commodity derivative cancellations) were paid directly by the counterparties to the lenders under the LINN Credit Facility as repayments of a portion of the borrowings outstanding. For the three months and nine months ended September 30, 2015, the Company received net cash settlements of approximately $292 million and $858 million, respectively. For the three months and nine months ended September 30, 2014, the Company received net cash settlements of approximately $10 million and paid net cash settlements of approximately $13 million, respectively.

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Note 8 – Fair Value Measurements on a Recurring Basis
The Company accounts for its commodity derivatives at fair value (see Note 7) on a recurring basis. The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets. Assumed credit risk adjustments, based on published credit ratings, public bond yield spreads and credit default swap spreads are applied to the Company’s commodity derivatives.
Fair Value Hierarchy
In accordance with applicable accounting standards, the Company has categorized its financial instruments, based on the priority of inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The following presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:
September 30, 2015September 30, 2016
Level 2 
Netting (1)
 TotalLevel 2 
Netting (1)
 Total
(in thousands)(in thousands)
Assets:          
Commodity derivatives$1,887,082
 $(33,185) $1,853,897
$6,451
 $(5,004) $1,447
Liabilities:          
Commodity derivatives$35,390
 $(33,185) $2,205
$7,979
 $(5,004) $2,975

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LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

December 31, 2014December 31, 2015
Level 2 
Netting (1)
 TotalLevel 2 
Netting (1)
 Total
(in thousands)(in thousands)
Assets:          
Commodity derivatives$2,014,815
 $(89,576) $1,925,239
$1,812,375
 $(25,744) $1,786,631
Liabilities:          
Commodity derivatives$90,260
 $(89,576) $684
$28,842
 $(25,744) $3,098
(1) 
Represents counterparty netting under agreements governing such derivatives.
Note 9 – Asset Retirement Obligations
The Company has the obligation to plug and abandon oil and natural gas wells and related equipment at the end of production operations. Estimated asset retirement costs are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets when the obligation is incurred. The liabilities are included in “other accrued liabilities” and “other noncurrent liabilities” on the condensed consolidated balance sheets. Accretion expense is included in “depreciation, depletion and amortization” on the condensed consolidated statements of operations. The fair value of additions to the asset retirement obligations is estimated using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plug and abandon costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) future inflation factors (2% for the nine months ended September 30, 2015);factors; and (iv) a credit-adjusted risk-free interest rate (average of 5.5% for the nine months ended September 30, 2015).rate. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The following table presents a reconciliation of the Company’s asset retirement obligations (in thousands):
Asset retirement obligations at December 31, 2014$497,570
Asset retirement obligations at December 31, 2015$523,541
Liabilities added from drilling2,857
449
Liabilities associated with assets sold(2,594)
Current year accretion expense22,290
23,199
Settlements(3,749)(7,862)
Revision of estimates2,022
356
Asset retirement obligations at September 30, 2015$518,396
Asset retirement obligations at September 30, 2016$539,683

Note 10 – Commitments and Contingencies
For certain statewide class action royalty payment disputes, where a reserve has not yet been established, the Company has deniedfiled notices advising that it has any liability on the claimshad filed for bankruptcy protection and has raised arguments and defenses that, if accepted by the courts, will result in no loss to the Company.seeking a stay, which was granted. In addition, the Company is involved in various other disputes arising in the ordinary course of business. The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.
During the nine months ended September 30, 2015,2016, and September 30, 2014,2015, the Company made no significant payments to settle any legal, environmental or tax proceedings. The Company regularly analyzes current information and accrues for probable liabilities on the disposition of certain matters as necessary. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
In 2008, Lehman Brothers Holdings Inc. and Lehman Brothers Commodity Services Inc. (together “Lehman”), filed voluntary petitions for reorganization underThe commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the U.S. Bankruptcy CodeCompany’s bankruptcy estates. The Company intends to seek authority to pay all general claims in the ordinary course of business notwithstanding the commencement of the Chapter 11 proceedings in a manner consistent with the U.S. Bankruptcy CourtLINN RSA and Bank RSA. The Plan in the Chapter 11 proceedings, if

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

confirmed, will provide for the Southern Districttreatment of New York. In March 2011, the Company and Lehman entered into Termination Agreements under which the Company was granted general unsecured claims against Lehman in the amount of $51 million (the “Company Claim”). In December 2011, aCompany’s bankruptcy estates, including prepetition liabilities that have not otherwise been satisfied or addressed during the Chapter 11 Plan was approved by the Bankruptcy Court. In both April 2015 and April 2014, the Company received approximately $3 million of the Company Claim, of which both amounts are included in “gains (losses) on oil and natural gas derivatives” on the condensed consolidated statements of operations. In the aggregate, the Company has received approximately $49 million of the Company Claim.proceedings. See Note 2 for additional information.
Note 11 – Earnings Per Unit
Basic earnings per unit is computed by dividing net earnings attributable to unitholders by the weighted average number of units outstanding during each period. Diluted earnings per unit is computed by adjusting the average number of units outstanding for the dilutive effect, if any, of unit equivalents. The Company uses the treasury stock method to determine the dilutive effect.

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The following table provides a reconciliation of the numerators and denominators of the basic and diluted per unit computations for net loss:
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2015 2014 2015 20142016 2015 2016 2015
(in thousands, except per unit data)(in thousands, except per unit data)
              
Net loss$(1,569,317) $(4,100) $(2,287,604) $(297,307)$(198,365) $(1,569,317) $(1,337,619) $(2,287,604)
Allocated to participating securities
 (2,097) (3,081) (6,289)
 
 
 (3,081)
$(1,569,317) $(6,197) $(2,290,685) $(303,596)$(198,365) $(1,569,317) $(1,337,619) $(2,290,685)
              
Basic net loss per unit$(4.47) $(0.02) $(6.72) $(0.92)$(0.56) $(4.47) $(3.79) $(6.72)
Diluted net loss per unit$(4.47) $(0.02) $(6.72) $(0.92)$(0.56) $(4.47) $(3.79) $(6.72)
              
Basic weighted average units outstanding350,695
 329,168
 340,831
 328,783
352,792
 350,695
 352,606
 340,831
Dilutive effect of unit equivalents
 
 
 

 
 
 
Diluted weighted average units outstanding350,695
 329,168
 340,831
 328,783
352,792
 350,695
 352,606
 340,831
Basic units outstanding excludes the effect of weighted average anti-dilutive unit equivalents related to approximately 1 million unit options and warrants for both the three months and nine months ended September 30, 2016, and approximately 4 million and 5 million unit options and warrants for the three months and nine months ended September 30, 2015, respectively, and approximately 6 million for both the three months and nine months ended September 30, 2014.respectively. All equivalent units were antidilutive for both the three months and nine months ended September 30, 2015,2016, and September 30, 2014.2015.
Note 12 – Income Taxes
The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Company’s subsidiaries are Subchapter C-corporations subject to federal and state income taxes. As such, with the exception of the state of Texas and certain subsidiaries, the Company is not a taxable entity, it does not directly pay federal and state income taxes and recognition has not been given to federal and state income taxes for the operations of the Company. Amounts recognized for income taxes are reported in “income tax expense (benefit)” on the condensed consolidated statements of operations.
Note 13 – Supplemental Disclosures to the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows
“Other accrued liabilities” reported on the condensed consolidated balance sheets include the following:
 
September 30,
2015
 December 31,
2014
 (in thousands)
    
Accrued interest$126,966
 $105,310
Accrued compensation37,860
 44,875
Asset retirement obligations16,187
 16,187
Other1,165
 1,364
 $182,178
 $167,736

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LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Note 13 – Supplemental Disclosures to the Condensed Consolidated Statements of Cash Flows
Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:
Nine Months Ended
September 30,
Nine Months Ended
September 30,
2015 20142016 2015
(in thousands)(in thousands)
      
Cash payments for interest, net of amounts capitalized$386,118
 $345,687
$163,828
 $386,118
Cash payments for income taxes$627
 $
$4,774
 $627
Cash payments for reorganization items, net$8,866
 $
      
Noncash investing activities:      
Accrued capital expenditures$98,404
 $273,220
$26,792
 $98,404
For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. At September 30, 2016, and December 31, 2015, “restricted cash” on the condensed consolidated balance sheetsheets includes approximately $197 million and $250 million, whichrespectively, related to the $250 million that LINN Energy borrowed under the LINN Credit Facility and contributed to Berry in May 2015 to post with Berry’s lenders in connection with the reduction in the Berry Credit Facility’s borrowing base.base, as well as associated interest income. Restricted cash also includes approximately $7$8 million and $6$7 million at September 30, 2015,2016, and December 31, 2014,2015, respectively, of cash deposited by the Company into a separate account designated for asset retirement obligations in accordance with contractual agreements.
The Company manages its working capitalDuring the nine months ended September 30, 2016, approximately $841 million in commodity derivative settlements (primarily in connection with the April 2016 and cash requirementsMay 2016 commodity derivative cancellations) were paid directly by the counterparties to borrow onlythe lenders under the LINN Credit Facility as neededrepayments of a portion of the borrowings outstanding, and are reflected as noncash transactions by the Company. In addition, during the three months and nine months ended September 30, 2016, approximately $16 million and $20 million, respectively, in letters of credit draws were made from itsthe Berry Credit Facilities. Facility as requested by certain vendors owed prepetition amounts from the Company.
At December 31, 2014,2015, net outstanding checks of approximately $95$21 million were reclassified and included in “accounts payable and accrued expenses” on the condensed consolidated balance sheet.sheets. At September 30, 2015,2016, no net outstanding checks were reclassified. Net outstanding checks are presented as cash flows from financing activities and included in “other” on the condensed consolidated statements of cash flows.
Note 14 – Related Party Transactions
LinnCo
LinnCo, LLC (“LinnCo”), an affiliate of LINN Energy, was formed on April 30, 2012. LinnCo’s initial sole purpose was to own units in LINN Energy. In connection with the 2013 acquisition of Berry, LinnCo amended its limited liability company agreement to permit, among other things, the acquisition and subsequent contribution of assets to LINN Energy. All of LinnCo’s common shares are held by the public. As of September 30, 2015,2016, LinnCo had no significant assets or operations other than those related to its interest in LINN Energy and owned approximately 37%71% of LINN Energy’s outstanding units.
In March 2016, LinnCo filed a Registration Statement on Form S-4 related to an offer to exchange each outstanding unit representing limited liability company interests of LINN Energy for one common share representing limited liability company interests of LinnCo. The initial offer expired on April 25, 2016, and on April 26, 2016, LinnCo commenced a subsequent offering period that expired on August 1, 2016. During the exchange period, 123,100,715 LINN Energy units were exchanged for an equal number of LinnCo shares. As a result of the exchanges of LINN Energy units for LinnCo shares, LinnCo’s

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

ownership of LINN Energy’s outstanding units increased from approximately 37% at December 31, 2015, to approximately 71% at September 30, 2016.
LINN Energy has agreed to provide to LinnCo, or to pay on LinnCo’s behalf, any financial, legal, accounting, tax advisory, financial advisory and engineering fees, and other administrative and out-of-pocket expenses incurred by LinnCo, along with any other expenses incurred in connection with any public offering of shares in LinnCo or incurred as a result of being a publicly traded entity. These expenses include costs associated with annual, quarterly and other reports to holders of LinnCo shares, tax return and Form 1099 preparation and distribution, NASDAQ listing fees, printing costs, independent auditor fees and expenses, legal counsel fees and expenses, limited liability company governance and compliance expenses and registrar and transfer agent fees. In addition, the Company has agreed to indemnify LinnCo and its officers and directors for damages suffered or costs incurred (other than income taxes payable by LinnCo) in connection with carrying out LinnCo’s activities. All expenses and costs paid by LINN Energy on LinnCo’s behalf are expensed by LINN Energy.
For the three months and nine months ended September 30, 2016, LinnCo incurred total general and administrative expenses, reorganization expenses and offering costs of approximately $1.0 million and $5.2 million, respectively, including approximately $603,000 and $1.8 million, respectively, related to services provided by LINN Energy. Of the expenses and costs incurred during the nine months ended September 30, 2016, approximately $5.1 million had been paid by LINN Energy on LinnCo’s behalf as of September 30, 2016.
For the three months and nine months ended September 30, 2015,, LinnCo incurred total general and administrative expenses and certain offering costs of approximately $965,000 and $2.8 million, respectively, allincluding approximately $491,000 and $1.5 million, respectively, related to services provided by LINN Energy. All of whichthe expenses and costs incurred during the nine months ended September 30, 2015, had been paid by LINN Energy on LinnCo’s behalf as of September 30, 2015.
The expenses forCompany did not pay any distributions to LinnCo during the three months or nine months ended September 30, 2016. During the three months and nine months ended September 30, 2015, include approximately $491,000 and $1.5 million, respectively, related to services provided by LINN Energy necessary for the conduct of LinnCo’s business, such as accounting, legal, tax, information technology and other expenses.

21

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LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

For the three months and nine months ended September 30, 2014, LinnCo incurred total general and administrative expenses and certain offering costs of approximately $644,000 and $2.1 million, respectively, of which approximately $1.9 million had been paid by LINN Energy on LinnCo’s behalf as of September 30, 2014. The expenses for the three months and nine months ended September 30, 2014, include approximately $470,000 and $1.4 million, respectively, related to services provided by LINN Energy necessary for the conduct of LinnCo’s business, such as accounting, legal, tax, information technology and other expenses. In addition, during the nine months ended September 30, 2014, LINN Energy paid approximately $11 million on LinnCo’s behalf for general and administrative expenses incurred by LinnCo in 2013.
During the three months and nine months ended September 30, 2015, the Company paid approximately $41 million and $121 million, respectively, in distributions to LinnCo attributable to LinnCo’s interest in LINN Energy. During the three months and nine months ended September 30, 2014, the Company paid approximately $94 million and $280 million, respectively, in distributions to LinnCo attributable to LinnCo’s interest in LINN Energy.
Other
One of the Company’s directors is the President and Chief Executive Officer of Superior Energy Services, Inc. (“Superior”), which provides oilfield services to the Company. For the three months and nine months ended September 30, 2015,2016, the Company incurred expenditures of approximately $2$1 million and $7$4 million, respectively, and for the three months and nine months ended September 30, 2014,2015, the Company incurred expenditures of approximately $5$2 million and $17$7 million, respectively, related to services rendered by Superior and its subsidiaries.
Note 15 – Subsidiary Guarantors
Linn Energy, LLC’s senior notes due May 2019, senior notes due November 2019, senior notes due April 2020, Second Lien Notes, senior notes due February 2021 and senior notes anddue September 2021 senior notes are guaranteed by all of the Company’s material subsidiaries, other than Berry Petroleum Company, LLC, which is an indirect 100% wholly owned subsidiary of the Company.
The following condensed consolidating financial information presents the financial information of Linn Energy, LLC, the guarantor subsidiaries and the non-guarantor subsidiary in accordance with SEC Regulation S-X Rule 3‑10. The condensed consolidating financial information for the co-issuer, Linn Energy Finance Corp., is not presented as it has no assets, operations or cash flows. The financial information may not necessarily be indicative of the financial position or results of operations had the guarantor subsidiaries or non-guarantor subsidiary operated as independent entities. There are no restrictions on the Company’s ability to obtain cash dividends or other distributions of funds from the guarantor subsidiaries.
In 2014, the Company had a consolidated variable interest entity (“VIE”) that was not considered a subsidiary and did not guarantee any of Linn Energy, LLC’s or Berry Petroleum Company, LLC’s indebtedness; therefore, it is presented separately. The VIE structure was terminated in December 2014.

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LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 20152016
Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations ConsolidatedLinn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
(in thousands)(in thousands)
ASSETS              
Current assets:                  
Cash and cash equivalents$32
 $61,969
 $282,805
 $
 $344,806
$311,180
 $459,680
 $29,647
 $
 $800,507
Accounts receivable – trade, net
 215,626
 55,530
 
 271,156

 165,650
 47,458
 
 213,108
Accounts receivable – affiliates3,265,327
 6,329
 
 (3,271,656) 
1,785,051
 35,567
 
 (1,820,618) 
Derivative instruments
 1,105,635
 26,529
 
 1,132,164

 1,447
 
 
 1,447
Other current assets
 68,813
 43,420
 (11) 112,222
18,677
 82,864
 19,551
 
 121,092
Total current assets3,265,359
 1,458,372
 408,284
 (3,271,667) 1,860,348
2,114,908
 745,208
 96,656
 (1,820,618) 1,136,154
                  
Noncurrent assets:                  
Oil and natural gas properties (successful efforts method)
 13,061,758
 5,000,233
 
 18,061,991

 13,171,180
 5,022,076
 
 18,193,256
Less accumulated depletion and amortization
 (6,517,088) (1,493,749) 57,440
 (7,953,397)
 (9,992,670) (2,755,015) 70,713
 (12,676,972)

 6,544,670
 3,506,484
 57,440
 10,108,594

 3,178,510
 2,267,061
 70,713
 5,516,284
                  
Other property and equipment
 584,892
 128,891
 
 713,783

 621,947
 120,317
 
 742,264
Less accumulated depreciation
 (171,095) (16,288) 
 (187,383)
 (213,586) (18,659) 
 (232,245)

 413,797
 112,603
 
 526,400

 408,361
 101,658
 
 510,019
                  
Derivative instruments
 721,397
 336
 
 721,733
Restricted cash
 6,798
 250,245
 
 257,043

 7,580
 197,624
 
 205,204
Notes receivable – affiliates181,400
 
 
 (181,400) 
137,400
 
 
 (137,400) 
Investments in consolidated subsidiaries6,779,570
 
 
 (6,779,570) 
2,263,182
 
 
 (2,263,182) 
Other noncurrent assets, net88,217
 5,387
 10,747
 
 104,351
Other noncurrent assets
 17,102
 18,257
 (72) 35,287
7,049,187
 733,582
 261,328
 (6,960,970) 1,083,127
2,400,582
 24,682
 215,881
 (2,400,654) 240,491
Total noncurrent assets7,049,187
 7,692,049
 3,880,415
 (6,903,530) 11,718,121
2,400,582
 3,611,553
 2,584,600
 (2,329,941) 6,266,794
Total assets$10,314,546
 $9,150,421
 $4,288,699
 $(10,175,197) $13,578,469
$4,515,490
 $4,356,761
 $2,681,256
 $(4,150,559) $7,402,948
                  
LIABILITIES AND UNITHOLDERS’ CAPITAL      
LIABILITIES AND UNITHOLDERS’ CAPITAL (DEFICIT)LIABILITIES AND UNITHOLDERS’ CAPITAL (DEFICIT)      
Current liabilities:                  
Accounts payable and accrued expenses$776
 $391,449
 $176,124
 $
 $568,349
$
 $293,729
 $69,274
 $
 $363,003
Accounts payable – affiliates
 3,265,327
 6,329
 (3,271,656) 

 1,785,051
 35,567
 (1,820,618) 
Derivative instruments
 
 1,462
 
 1,462

 82
 1,694
 
 1,776
Current portion of long-term debt, net1,937,589
 
 891,259
 
 2,828,848
Other accrued liabilities116,969
 52,513
 12,707
 (11) 182,178
374
 43,426
 2,499
 
 46,299
Total current liabilities117,745
 3,709,289
 196,622
 (3,271,667) 751,989
1,937,963
 2,122,288
 1,000,293
 (1,820,618) 3,239,926
                  
Noncurrent liabilities: 
  
  
  
  
Credit facilities2,305,000
 
 1,173,175
 
 3,478,175
Term loan500,000
 
 
 
 500,000
Senior notes, net5,204,297
 
 845,804
 
 6,050,101
Derivative instruments
 1,199
 
 
 1,199
Notes payable – affiliates
 181,400
 
 (181,400) 

 137,400
 
 (137,400) 
Derivative instruments
 320
 423
 
 743
Other noncurrent liabilities
 402,225
 200,931
 
 603,156

 396,772
 174,423
 (72) 571,123
Total noncurrent liabilities8,009,297
 583,945
 2,220,333
 (181,400) 10,632,175
Liabilities subject to compromise4,168,822
 67,439
 936,798
 
 5,173,059
                  
Unitholders’ capital:         
Unitholders’ capital (deficit):         
Units issued and outstanding5,327,314
 4,831,078
 2,757,836
 (7,582,113) 5,334,115
5,358,341
 4,831,412
 2,798,713
 (7,621,189) 5,367,277
Accumulated income (deficit)(3,139,810) 26,109
 (886,092) 859,983
 (3,139,810)
Accumulated deficit(6,949,636) (3,199,749) (2,228,971) 5,428,720
 (6,949,636)
2,187,504
 4,857,187
 1,871,744
 (6,722,130) 2,194,305
(1,591,295) 1,631,663
 569,742
 (2,192,469) (1,582,359)
Total liabilities and unitholders’ capital$10,314,546
 $9,150,421
 $4,288,699
 $(10,175,197) $13,578,469
Total liabilities and unitholders’ capital (deficit)$4,515,490
 $4,356,761
 $2,681,256
 $(4,150,559) $7,402,948

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LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 20142015
Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations ConsolidatedLinn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
(in thousands)(in thousands)
ASSETS              
Current assets:                  
Cash and cash equivalents$38
 $185
 $1,586
 $
 $1,809
$1,073
 $72
 $1,023
 $
 $2,168
Accounts receivable – trade, net
 371,325
 100,359
 
 471,684

 170,503
 46,053
 
 216,556
Accounts receivable – affiliates4,028,890
 13,205
 
 (4,042,095) 
2,920,082
 8,621
 
 (2,928,703) 
Derivative instruments
 1,033,448
 43,694
 
 1,077,142

 1,207,012
 13,218
 
 1,220,230
Other current assets18
 96,678
 59,259
 
 155,955
25,090
 49,606
 20,897
 
 95,593
Total current assets4,028,946
 1,514,841
 204,898
 (4,042,095) 1,706,590
2,946,245
 1,435,814
 81,191
 (2,928,703) 1,534,547
                  
Noncurrent assets:                  
Oil and natural gas properties (successful efforts method)
 13,196,841
 4,872,059
 
 18,068,900

 13,110,094
 5,011,061
 
 18,121,155
Less accumulated depletion and amortization
 (4,342,675) (525,007) 
 (4,867,682)
 (9,557,283) (1,596,165) 55,956
 (11,097,492)

 8,854,166
 4,347,052
 
 13,201,218

 3,552,811
 3,414,896
 55,956
 7,023,663
                  
Other property and equipment
 553,150
 115,999
 
 669,149

 597,216
 111,495
 
 708,711
Less accumulated depreciation
 (135,830) (8,452) 
 (144,282)
 (183,139) (12,522) 
 (195,661)

 417,320
 107,547
 
 524,867

 414,077
 98,973
 
 513,050
                  
Derivative instruments
 848,097
 
 
 848,097

 566,401
 
 
 566,401
Restricted cash
 6,100
 125
 
 6,225

 7,004
 250,359
 
 257,363
Notes receivable – affiliates130,500
 
 
 (130,500) 
175,100
 
 
 (175,100) 
Advance to affiliate
 
 293,627
 (293,627) 
Investments in consolidated subsidiaries8,562,608
 
 
 (8,562,608) 
3,940,444
 
 
 (3,940,444) 
Other noncurrent assets, net116,637
 5,716
 14,159
 
 136,512
Other noncurrent assets
 17,178
 16,057
 (1) 33,234
8,809,745
 859,913
 307,911
 (8,986,735) 990,834
4,115,544
 590,583
 266,416
 (4,115,545) 856,998
Total noncurrent assets8,809,745
 10,131,399
 4,762,510
 (8,986,735) 14,716,919
4,115,544
 4,557,471
 3,780,285
 (4,059,589) 8,393,711
Total assets$12,838,691
 $11,646,240
 $4,967,408
 $(13,028,830) $16,423,509
$7,061,789
 $5,993,285
 $3,861,476
 $(6,988,292) $9,928,258
                  
LIABILITIES AND UNITHOLDERS’ CAPITAL      
LIABILITIES AND UNITHOLDERS’ CAPITAL (DEFICIT)LIABILITIES AND UNITHOLDERS’ CAPITAL (DEFICIT)      
Current liabilities:                  
Accounts payable and accrued expenses$3,784
 $581,880
 $229,145
 $
 $814,809
$1,285
 $336,962
 $117,127
 $
 $455,374
Accounts payable – affiliates
 4,028,890
 13,205
 (4,042,095) 

 2,920,082
 8,621
 (2,928,703) 
Advance from affiliate
 293,627
 
 (293,627) 
Derivative instruments
 
 2,241
 
 2,241
Current portion of long-term debt, net2,841,518
 
 873,175
 
 3,714,693
Other accrued liabilities89,507
 59,142
 19,087
 
 167,736
49,861
 52,997
 16,735
 
 119,593
Total current liabilities93,291
 4,963,539
 261,437
 (4,335,722) 982,545
2,892,664
 3,310,041
 1,017,899
 (2,928,703) 4,291,901
                  
Noncurrent liabilities: 
  
  
  
  
Credit facilities1,795,000
 
 1,173,175
 
 2,968,175
Term loan500,000
 
 
 
 500,000
Senior notes, net5,913,857
 
 913,777
 
 6,827,634
Derivative instruments
 857
 
 
 857
Long-term debt, net4,447,308
 
 845,368
 
 5,292,676
Notes payable – affiliates
 130,500
 
 (130,500) 

 175,100
 
 (175,100) 
Derivative instruments
 684
 
 
 684
Other noncurrent liabilities
 400,851
 200,015
 
 600,866

 399,676
 212,050
 (1) 611,725
Total noncurrent liabilities8,208,857
 532,035
 2,286,967
 (130,500) 10,897,359
                  
Unitholders’ capital:         
Unitholders’ capital (deficit):         
Units issued and outstanding5,388,749
 4,831,339
 2,416,381
 (7,240,658) 5,395,811
5,333,834
 4,831,758
 2,798,713
 (7,621,189) 5,343,116
Accumulated income (deficit)(852,206) 1,319,327
 2,623
 (1,321,950) (852,206)
Accumulated deficit(5,612,017) (2,724,147) (1,012,554) 3,736,701
 (5,612,017)
4,536,543
 6,150,666
 2,419,004
 (8,562,608) 4,543,605
(278,183) 2,107,611
 1,786,159
 (3,884,488) (268,901)
Total liabilities and unitholders’ capital$12,838,691
 $11,646,240
 $4,967,408
 $(13,028,830) $16,423,509
Total liabilities and unitholders’ capital (deficit)$7,061,789
 $5,993,285
 $3,861,476
 $(6,988,292) $9,928,258

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LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2016
 Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
 (in thousands)
Revenues and other:         
Oil, natural gas and natural gas liquids sales$
 $257,902
 $102,241
 $
 $360,143
Gains on oil and natural gas derivatives
 166
 108
 
 274
Marketing revenues
 9,249
 9,103
 
 18,352
Other revenues
 5,123
 1,773
 
 6,896
 
 272,440
 113,225
 
 385,665
Expenses:         
Lease operating expenses
 71,422
 46,048
 
 117,470
Transportation expenses
 40,986
 8,644
 
 49,630
Marketing expenses
 6,933
 5,258
 
 12,191
General and administrative expenses
 34,809
 15,393
 
 50,202
Exploration costs
 4
 
 
 4
Depreciation, depletion and amortization
 105,304
 39,951
 (2,807) 142,448
Impairment of long-lived assets
 41,728
 
 
 41,728
Taxes, other than income taxes2
 19,075
 (3,694) 
 15,383
(Gains) losses on sale of assets and other, net
 2,310
 (370) 
 1,940
 2
 322,571
 111,230
 (2,807) 430,996
Other income and (expenses):         
Interest expense, net of amounts capitalized(27,595) (95) (12,415) 
 (40,105)
Interest expense – affiliates
 (2,479) 
 2,479
 
Interest income – affiliates2,479
 
 
 (2,479) 
Equity in losses from consolidated subsidiaries(171,817) 
 
 171,817
 
Other, net(116) (84) (69) 
 (269)
 (197,049) (2,658) (12,484) 171,817
 (40,374)
Reorganization items, net(1,314) (27,047) (87,915) 
 (116,276)
Loss before income taxes(198,365) (79,836) (98,404) 174,624
 (201,981)
Income tax expense (benefit)
 (3,650) 34
 
 (3,616)
Net loss$(198,365) $(76,186) $(98,438) $174,624
 $(198,365)

29

Table of Contents
LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2015
Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations ConsolidatedLinn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
 (in thousands)
Revenues and other:                  
Oil, natural gas and natural gas liquids sales$
 $286,993
 $140,252
 $
 $427,245
$
 $286,993
 $140,252
 $
 $427,245
Gains on oil and natural gas derivatives
 521,365
 27,664
 
 549,029

 521,365
 27,664
 
 549,029
Marketing revenues
 6,004
 9,719
 
 15,723

 6,004
 9,719
 
 15,723
Other revenues
 4,635
 1,672
 
 6,307

 4,635
 1,672
 
 6,307

 818,997
 179,307
 
 998,304

 818,997
 179,307
 
 998,304
Expenses:                  
Lease operating expenses
 86,745
 67,341
 
 154,086

 86,745
 67,341
 
 154,086
Transportation expenses
 41,121
 13,794
 
 54,915

 41,121
 13,794
 
 54,915
Marketing expenses
 3,633
 5,726
 
 9,359

 3,633
 5,726
 
 9,359
General and administrative expenses
 38,549
 21,564
 
 60,113

 38,549
 21,564
 
 60,113
Exploration costs
 3,072
 
 
 3,072

 3,072
 
 
 3,072
Depreciation, depletion and amortization
 142,211
 63,057
 1,950
 207,218

 142,211
 63,057
 1,950
 207,218
Impairment of long-lived assets
 1,744,449
 510,631
 
 2,255,080

 1,744,449
 510,631
 
 2,255,080
Taxes, other than income taxes
 31,718
 14,520
 
 46,238

 31,718
 14,520
 
 46,238
(Gains) losses on sale of assets and other, net
 (169,613) 2,633
 
 (166,980)
 (169,613) 2,633
 
 (166,980)

 1,921,885
 699,266
 1,950
 2,623,101

 1,921,885
 699,266
 1,950
 2,623,101
Other income and (expenses):                  
Interest expense, net of amounts capitalized(117,096) 197
 (21,484) 
 (138,383)(117,096) 197
 (21,484) 
 (138,383)
Interest expense – affiliates
 (2,207) 
 2,207
 

 (2,207) 
 2,207
 
Interest income – affiliates2,207
 
 
 (2,207) 
2,207
 
 
 (2,207) 
Gain on extinguishment of debt193,363
 
 4,378
 
 197,741
193,363
 
 4,378
 
 197,741
Equity in losses from consolidated subsidiaries(1,646,256) 
 
 1,646,256
 
(1,646,256) 
 
 1,646,256
 
Other, net(1,535) (76) (90) 
 (1,701)(1,535) (76) (90) 
 (1,701)
(1,569,317) (2,086) (17,196) 1,646,256
 57,657
(1,569,317) (2,086) (17,196) 1,646,256
 57,657
Loss before income taxes(1,569,317) (1,104,974) (537,155) 1,644,306
 (1,567,140)(1,569,317) (1,104,974) (537,155) 1,644,306
 (1,567,140)
Income tax expense
 2,174
 3
 
 2,177

 2,174
 3
 
 2,177
Net loss$(1,569,317) $(1,107,148) $(537,158) $1,644,306
 $(1,569,317)$(1,569,317) $(1,107,148) $(537,158) $1,644,306
 $(1,569,317)


2530

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LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the ThreeNine Months Ended September 30, 20142016
Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 
Non-
Guarantor VIE
 Eliminations ConsolidatedLinn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
(in thousands)(in thousands)
Revenues and other:                    
Oil, natural gas and natural gas liquids sales$
 $542,535
 $350,863
 $44,060
 $
 $937,458
$
 $674,177
 $285,538
 $
 $959,715
Gains on oil and natural gas derivatives
 406,712
 44,990
 
 
 451,702
Gains (losses) on oil and natural gas derivatives
 (74,175) 1,642
 
 (72,533)
Marketing revenues
 26,518
 13,318
 
 
 39,836

 26,861
 20,316
 
 47,177
Other revenues
 5,874
 245
 
 
 6,119

 15,834
 5,634
 
 21,468

 981,639
 409,416
 44,060
 
 1,435,115

 642,697
 313,130
 
 955,827
Expenses:                    
Lease operating expenses
 97,613
 83,684
 10,333
 
 191,630

 232,101
 138,557
 
 370,658
Transportation expenses
 36,531
 13,326
 3,555
 
 53,412

 124,072
 32,518
 
 156,590
Marketing expenses
 23,871
 7,703
 
 
 31,574

 21,493
 14,291
 
 35,784
General and administrative expenses
 52,580
 16,566
 6,238
 
 75,384

 131,064
 65,313
 
 196,377
Exploration costs
 7,850
 
 
 
 7,850

 2,745
 
 
 2,745
Depreciation, depletion and amortization
 199,360
 79,725
 11,202
 
 290,287

 318,067
 139,980
 (8,370) 449,677
Impairment of long-lived assets
 603,250
 
 
 

 603,250

 171,431
 1,030,588
 (6,387) 1,195,632
Taxes, other than income taxes40
 38,598
 24,830
 3,302
 
 66,770
4
 59,679
 20,614
 
 80,297
(Gains) losses on sale of assets and other, net
 (93,257) 49,011
 8,443
 
 (35,803)
 6,096
 (137) 
 5,959
40
 966,396
 274,845
 43,073
 
 1,284,354
4
 1,066,748
 1,441,724
 (14,757) 2,493,719
Other income and (expenses):                    
Interest expense, net of amounts capitalized(129,129) 757
 (19,068) (6,607) 
 (154,047)(165,185) 146
 (48,719) 
 (213,758)
Interest expense – affiliates
 (2,218) 
 
 2,218
 

 (8,417) 
 8,417
 
Interest income – affiliates2,218
 
 
 
 (2,218) 
8,417
 
 
 (8,417) 
Equity in earnings from consolidated subsidiaries124,435
 
 
 
 (124,435) 
Equity in losses from consolidated subsidiaries(1,677,262) 
 
 1,677,262
 
Other, net(1,584) (84) (179) 
 
 (1,847)(1,358) 
 (79) 
 (1,437)
(4,060) (1,545) (19,247) (6,607) (124,435) (155,894)(1,835,388) (8,271) (48,798) 1,677,262
 (215,195)
Income (loss) before income taxes(4,100) 13,698
 115,324
 (5,620) (124,435) (5,133)
Income tax expense (benefit)
 (1,192) 159
 
 
 (1,033)
Net income (loss)$(4,100) $14,890
 $115,165
 $(5,620) $(124,435) $(4,100)
Reorganization items, net497,773
 (40,336) (38,829) 
 418,608
Loss before income taxes(1,337,619) (472,658) (1,216,221) 1,692,019
 (1,334,479)
Income tax expense
 2,944
 196
 
 3,140
Net loss$(1,337,619) $(475,602) $(1,216,417) $1,692,019
 $(1,337,619)

2631

Table of Contents
LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2015
 Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
 (in thousands)
Revenues and other:         
Oil, natural gas and natural gas liquids sales$
 $904,014
 $470,219
 $
 $1,374,233
Gains on oil and natural gas derivatives
 756,165
 26,457
 
 782,622
Marketing revenues
 35,501
 24,699
 
 60,200
Other revenues
 14,521
 5,103
 
 19,624
 
 1,710,201
 526,478
 
 2,236,679
Expenses:         
Lease operating expenses
 283,333
 184,426
 
 467,759
Transportation expenses
 124,872
 39,378
 
 164,250
Marketing expenses
 29,990
 17,369
 
 47,359
General and administrative expenses
 157,878
 79,853
 
 237,731
Exploration costs
 4,032
 
 
 4,032
Depreciation, depletion and amortization
 433,649
 199,088
 5,227
 637,964
Impairment of long-lived assets
 2,069,866
 782,631
 (64,800) 2,787,697
Taxes, other than income taxes2
 98,267
 60,048
 
 158,317
Gains on sale of assets and other, net
 (194,612) (2,651) 
 (197,263)
 2
 3,007,275
 1,360,142
 (59,573) 4,307,846
Other income and (expenses):         
Interest expense, net of amounts capitalized(364,037) 2,048
 (65,595) 
 (427,584)
Interest expense – affiliates
 (7,824) 
 7,824
 
Interest income – affiliates7,824
 
 
 (7,824) 
Gain on extinguishment of debt202,318
 
 11,209
 
 213,527
Equity in losses from consolidated subsidiaries(2,124,493) 
 
 2,124,493
 
Other, net(9,214) (123) (723) 
 (10,060)
 (2,287,602) (5,899) (55,109) 2,124,493
 (224,117)
Loss before income taxes(2,287,604) (1,302,973) (888,773) 2,184,066
 (2,295,284)
Income tax benefit
 (7,622) (58) 
 (7,680)
Net loss$(2,287,604) $(1,295,351) $(888,715) $2,184,066
 $(2,287,604)


2732

Table of Contents
LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSCASH FLOWS
For the Nine Months Ended September 30, 20142016
 Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 
Non-
Guarantor VIE
 Eliminations Consolidated
 (in thousands)
Revenues and other:           
Oil, natural gas and natural gas liquids sales$
 $1,755,766
 $1,044,359
 $44,060
 $
 $2,844,185
Gains (losses) on oil and natural gas derivatives
 (221,472) 22,893
 
 
 (198,579)
Marketing revenues
 60,088
 40,567
 
 
 100,655
Other revenues
 19,154
 238
 
 
 19,392
 
 1,613,536
 1,108,057
 44,060
 
 2,765,653
Expenses:           
Lease operating expenses
 293,162
 267,069
 10,333
 
 570,564
Transportation expenses
 111,539
 28,802
 3,555
 
 143,896
Marketing expenses
 47,511
 28,409
 
 
 75,920
General and administrative expenses
 126,901
 88,379
 6,238
 
 221,518
Exploration costs
 10,492
 
 
 
 10,492
Depreciation, depletion and amortization
 595,212
 226,109
 11,202
 
 832,523
Impairment of long-lived assets
 603,250
 
 
 
 603,250
Taxes, other than income taxes40
 126,334
 71,338
 3,302
 
 201,014
(Gains) losses on sale of assets and other, net
 (92,828) 56,635
 8,443
 
 (27,750)
 40
 1,821,573
 766,741
 43,073
 
 2,631,427
Other income and (expenses):           
Interest expense, net of amounts capitalized(350,382) 1,384
 (66,555) (6,607) 
 (422,160)
Interest expense – affiliates
 (5,627) 
 
 5,627
 
Interest income – affiliates5,627
 
 
 
 (5,627) 
Equity in earnings from consolidated subsidiaries53,244
 
 
 
 (53,244) 
Other, net(5,756) (130) (813) 
 
 (6,699)
 (297,267) (4,373) (67,368) (6,607) (53,244) (428,859)
Income (loss) before income taxes(297,307) (212,410) 273,948
 (5,620) (53,244) (294,633)
Income tax expense
 2,597
 77
 
 
 2,674
Net income (loss)$(297,307) $(215,007) $273,871
 $(5,620) $(53,244) $(297,307)
 Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
 (in thousands)
Cash flow from operating activities:         
Net loss$(1,337,619) $(475,602) $(1,216,417) $1,692,019
 $(1,337,619)
Adjustments to reconcile net loss to net cash provided by operating activities:         
Depreciation, depletion and amortization
 318,067
 139,980
 (8,370) 449,677
Impairment of long-lived assets
 171,431
 1,030,588
 (6,387) 1,195,632
Unit-based compensation expenses
 24,514
 
 
 24,514
Amortization and write-off of deferred financing fees11,288
 
 1,226
 
 12,514
(Gains) losses on sale of assets and other, net
 5,534
 (874) 
 4,660
Equity in losses from consolidated subsidiaries1,677,262
 
 
 (1,677,262) 
Deferred income taxes
 831
 71
 
 902
Reorganization items(497,446) 11,615
 22,866
 
 (462,965)
Derivatives activities:         
Total losses
 74,175
 2,963
 
 77,138
Cash settlements
 500,075
 8,007
 
 508,082
Cash settlements on canceled derivatives
 356,835
 1,701
 
 358,536
Changes in assets and liabilities:         
Increase in accounts receivable – trade, net
 (911) (2,839) 
 (3,750)
(Increase) decrease in accounts receivable – affiliates323,348
 (26,946) 
 (296,402) 
Increase in other assets
 (17,111) (3,175) 
 (20,286)
Increase (decrease) in accounts payable and accrued expenses(36) 64,288
 (9,080) 
 55,172
Increase (decrease) in accounts payable and accrued expenses – affiliates
 (323,348) 26,946
 296,402
 
Increase (decrease) in other liabilities37,374
 (15,695) 1,306
 
 22,985
Net cash provided by operating activities214,171
 667,752
 3,269
 
 885,192
Cash flow from investing activities:         
Development of oil and natural gas properties
 (126,228) (16,168) 
 (142,396)
Purchases of other property and equipment
 (26,570) (10,366) 
 (36,936)
Decrease in restricted cash
 
 53,418
 
 53,418
Change in notes receivable with affiliate37,700
 
 
 (37,700) 
Proceeds from sale of properties and equipment and other(5,114) 1,793
 172
 
 (3,149)
Net cash provided by (used in) investing activities32,586
 (151,005) 27,056
 (37,700) (129,063)


2833

Table of Contents
LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

 Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
 (in thousands)
Cash flow from financing activities:         
Proceeds from borrowings978,500
 
 
 
 978,500
Repayments of debt(913,210) 
 (1,701) 
 (914,911)
Financing fees and offering costs(692) 
 
 
 (692)
Change in notes payable with affiliate
 (37,700) 
 37,700
 
Other(1,248) (19,439) 
 
 (20,687)
Net cash provided by (used in) financing activities63,350
 (57,139) (1,701) 37,700
 42,210
          
Net increase in cash and cash equivalents310,107
 459,608
 28,624
 
 798,339
Cash and cash equivalents:         
Beginning1,073
 72
 1,023
 
 2,168
Ending$311,180
 $459,680
 $29,647
 $
 $800,507

34

Table of Contents
LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2015
Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations ConsolidatedLinn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
(in thousands)(in thousands)
Cash flow from operating activities:                  
Net loss$(2,287,604) $(1,295,351) $(888,715) $2,184,066
 $(2,287,604)$(2,287,604) $(1,295,351) $(888,715) $2,184,066
 $(2,287,604)
Adjustments to reconcile net loss to net cash provided by operating activities:                  
Depreciation, depletion and amortization
 433,649
 199,088
 5,227
 637,964

 433,649
 199,088
 5,227
 637,964
Impairment of long-lived assets
 2,069,866
 782,631
 (64,800) 2,787,697

 2,069,866
 782,631
 (64,800) 2,787,697
Unit-based compensation expenses
 47,918
 
 
 47,918

 47,918
 
 
 47,918
Gain on extinguishment of debt(202,318) 
 (11,209) 
 (213,527)(202,318) 
 (11,209) 
 (213,527)
Amortization and write-off of deferred financing fees22,677
 
 1,121
 
 23,798
22,677
 
 1,121
 
 23,798
Gains on sale of assets and other, net
 (192,247) (1,521) 
 (193,768)
 (192,247) (1,521) 
 (193,768)
Equity in losses from consolidated subsidiaries2,124,493
 
 
 (2,124,493) 
2,124,493
 
 
 (2,124,493) 
Deferred income taxes
 (8,205) (58) 
 (8,263)
 (8,205) (58) 
 (8,263)
Derivatives activities:                  
Total gains
 (756,165) (29,355) 
 (785,520)
 (756,165) (29,355) 
 (785,520)
Cash settlements
 810,314
 48,054
 
 858,368

 810,314
 48,054
 
 858,368
Changes in assets and liabilities:                  
Decrease in accounts receivable – trade, net
 163,353
 43,709
 
 207,062

 163,353
 43,709
 
 207,062
Decrease in accounts receivable – affiliates813,653
 6,876
 
 (820,529) 
813,653
 6,876
 
 (820,529) 
Decrease in other assets
 1,164
 1,519
 
 2,683

 1,164
 1,519
 
 2,683
Decrease in accounts payable and accrued expenses
 (28,331) (8,295) 
 (36,626)
 (28,331) (8,295) 
 (36,626)
Decrease in accounts payable and accrued expenses – affiliates
 (813,653) (6,876) 820,529
 

 (813,653) (6,876) 820,529
 
Increase (decrease) in other liabilities27,462
 (12,086) (20,789) 
 (5,413)27,462
 (12,086) (20,789) 
 (5,413)
Net cash provided by operating activities498,363
 427,102
 109,304
 
 1,034,769
498,363
 427,102
 109,304
 
 1,034,769
Cash flow from investing activities:                  
Development of oil and natural gas properties
 (500,130) (3,076) 
 (503,206)
 (500,130) (3,076) 
 (503,206)
Purchases of other property and equipment
 (38,769) (12,760) 
 (51,529)
 (38,769) (12,760) 
 (51,529)
Investment in affiliates(91,455) 
 
 91,455
 
(91,455) 
 
 91,455
 
Change in notes receivable with affiliate(50,900) 
 
 50,900
 
(50,900) 
 
 50,900
 
Settlement of advance to affiliate
 
 129,217
 (129,217) 

 
 129,217
 (129,217) 
Proceeds from sale of properties and equipment and other(2,826) 344,535
 22,486
 
 364,195
(2,826) 344,535
 22,486
 
 364,195
Net cash provided by (used in) investing activities(145,181) (194,364) 135,867
 13,138
 (190,540)(145,181) (194,364) 135,867
 13,138
 (190,540)
         

2935

Table of Contents
LINN ENERGY, LLC (DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

 Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 Eliminations Consolidated
 (in thousands)
Cash flow from financing activities:         
Proceeds from sale of units233,427
 
 
 
 233,427
Proceeds from borrowings1,405,000
 
 
 
 1,405,000
Repayments of debt(1,646,491) 
 (55,418) 
 (1,701,909)
Distributions to unitholders(323,878) 
 
 
 (323,878)
Financing fees and offering costs(8,771) 
 (3) 
 (8,774)
Change in notes payable with affiliate
 50,900
 
 (50,900) 
Settlement of advance from affiliate
 (129,217) 
 129,217
 
Capital contributions – affiliates
 
 91,455
 (91,455) 
Excess tax benefit from unit-based compensation(9,467) 
 
 
 (9,467)
Other(3,008) (92,637) 14
 
 (95,631)
Net cash provided by (used in) financing activities(353,188) (170,954) 36,048
 (13,138) (501,232)
          
Net increase (decrease) in cash and cash equivalents(6) 61,784
 281,219
 
 342,997
Cash and cash equivalents:         
Beginning38
 185
 1,586
 
 1,809
Ending$32
 $61,969
 $282,805
 $
 $344,806

30

LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2014
 Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 
Non-
Guarantor VIE
 Eliminations Consolidated
 (in thousands)
Cash flow from operating activities:           
Net income (loss)$(297,307) $(215,007) $273,871
 $(5,620) $(53,244) $(297,307)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:           
Depreciation, depletion and amortization
 595,212
 226,109
 11,202
 
 832,523
Impairment of long-lived assets
 603,250
 
 
 
 603,250
Unit-based compensation expenses
 43,692
 
 
 
 43,692
Amortization and write-off of deferred financing fees31,564
 
 (5,174) 2,846
 
 29,236
(Gains) losses on sale of assets and other, net
 (81,492) 48,357
 
 
 (33,135)
Equity in earnings from consolidated subsidiaries(53,244) 
 
 
 53,244
 
Deferred income taxes
 2,542
 77
 
 
 2,619
Derivatives activities:           
Total (gains) losses
 221,472
 (22,893) 
 
 198,579
Cash settlements
 5,623
 (18,130) 
 
 (12,507)
Changes in assets and liabilities:           
Increase in accounts receivable – trade, net
 (1,343) (10,611) (44,060) 
 (56,014)
Decrease in accounts receivable – affiliates469,499
 16,950
 
 
 (486,449) 
(Increase) decrease in other assets312
 (10,723) 4,551
 9,144
 
 3,284
Increase (decrease) in accounts payable and accrued expenses18
 107,673
 (10,619) 15,163
 
 112,235
Decrease in accounts payable and accrued expenses – affiliates
 (468,896) (5,722) (11,831) 486,449
 
Increase (decrease) in other liabilities63,806
 (18,053) (36,626) 228
 
 9,355
Net cash provided by (used in) operating activities214,648
 800,900
 443,190
 (22,928) 
 1,435,810
            

31

LINN ENERGY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

 Linn Energy, LLC Guarantor Subsidiaries 
Non-
Guarantor Subsidiary
 
Non-
Guarantor VIE
 Eliminations Consolidated
 (in thousands)
Cash flow from investing activities:           
Acquisition of oil and natural gas properties and joint-venture funding
 (76,627) (3,912) (2,521,393) 
 (2,601,932)
Development of oil and natural gas properties
 (750,450) (426,028) 
 
 (1,176,478)
Purchases of other property and equipment
 (41,822) (8,316) 
 
 (50,138)
Investment in affiliates(167,721) 
 
 
 167,721
 
Change in notes receivable with affiliate(35,300) 
 
 
 35,300
 
Advance to related party(1,285,000) (1,285,000) 
 
 2,570,000
 
Proceeds from sale of properties and equipment and other(13,188) 5,447
 256
 
 
 (7,485)
Net cash used in investing activities(1,501,209) (2,148,452) (438,000) (2,521,393) 2,773,021
 (3,836,033)
            
Cash flow from financing activities:           
Proceeds from borrowings4,000,024
 
 
 1,300,000
 
 5,300,024
Repayments of debt(1,950,000) 
 (206,124) 
 
 (2,156,124)
Distributions to unitholders(721,235) 
 
 
 
 (721,235)
Financing fees and offering costs(57,968) 
 (10,646) 
 
 (68,614)
Change in notes payable with affiliate
 35,300
 
 
 (35,300) 
Advance from related party
 1,285,000
 
 1,285,000
 (2,570,000) 
Capital contributions – affiliates
 
 167,721
 
 (167,721) 
Excess tax benefit from unit-based compensation4,031
 
 
 
 
 4,031
Other11,705
 38,032
 (606) 
 
 49,131
Net cash provided by (used in) financing activities1,286,557
 1,358,332
 (49,655) 2,585,000
 (2,773,021) 2,407,213
            
Net increase (decrease) in cash and cash equivalents(4) 10,780
 (44,465) 40,679
 
 6,990
Cash and cash equivalents:           
Beginning52
 1,078
 51,041
 
 
 52,171
Ending$48
 $11,858
 $6,576
 $40,679
 $
 $59,161

32


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the financial statements and related notes included in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The following discussion contains forward-looking statements that reflect the Company’s future plans,based on expectations, estimates beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties thatassumptions. Actual results may be outside the Company’s control. The Company’s actual results could differ materially from those discussed in thesethe forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGL, production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, as well as those factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” below and in Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2014, and elsewhere in the Annual Report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.
The following discussion and analysis should be read in conjunction with the financial statements and related notes included in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. 2015, and elsewhere in the Annual Report.
When referring to Linn Energy, LLC (“LINN Energy” or the “Company”), the intent is to refer to LINN Energy and its consolidated subsidiaries as a whole or on an individual basis, depending on the context in which the statements are made. The reference to “Berry” herein refers to Berry Petroleum Company, LLC, which is an indirect 100% wholly owned subsidiary of LINN Energy. The reference to “LinnCo” herein refers to LinnCo, LLC, which is an affiliate of LINN Energy.
The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”
Executive Overview
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 an independent oil and natural gas company that began operations in March 2003 and completed its initial public offering in January 2006. The Company’s properties are located in eight operating regions in the United States (“U.S.”):
Rockies, which includes properties located in Wyoming (Green River, Washakie and Powder River basins), Utah (Uinta Basin), North Dakota (Williston Basin) and Colorado (Piceance Basin);
Hugoton Basin, which includes properties located in Kansas, the Oklahoma Panhandle and the Shallow Texas Panhandle;
California, which includes properties located in the San Joaquin Valley and Los Angeles basins;
Mid-Continent, which includes Oklahoma properties located in the Anadarko and Arkoma basins, as well as waterfloods in the Central Oklahoma Platform;
TexLa, which includes properties located in east Texas and north Louisiana;
Permian Basin, which includes properties located in west Texas and southeast New Mexico;
TexLa, which includes properties located in east Texas and north Louisiana;
South Texas; and
Michigan/Illinois, which includes properties located in the Antrim Shale formation in north Michigan and oil properties in south Illinois.Illinois; and
South Texas.
Results for the three months ended September 30, 2015,2016, included the following:
oil, natural gas and NGL sales of approximately $427$360 million compared to $937$427 million for the third quarter of 2014;three months ended September 30, 2015;
average daily production of approximately 1,1981,075 MMcfe/d compared to 1,2451,198 MMcfe/d for the third quarter of 2014;three months ended September 30, 2015;
net loss of approximately $198 million compared to $1.6 billion for the three months ended September 30, 2015;
capital expenditures of approximately $49 million compared to $4$113 million for the third quarter of 2014;three months ended September 30, 2015; and
capital expenditures, excluding acquisitions, of approximately $113 million46 wells drilled (all successful) compared to $369 million for the third quarter of 2014; and
41 wells drilled (38 successful) compared to 210 wells drilled (all successful) for the third quarter of 2014.three months ended September 30, 2015.
Results for the nine months ended September 30, 2015,2016, included the following:
oil, natural gas and NGL sales of approximately $1.4 billion compared to $2.8 billion for the nine months ended September 30, 2014;
average daily production of approximately 1,206 MMcfe/d compared to 1,160 MMcfe/d for the nine months ended September 30, 2014;
net loss of approximately $2.3 billion compared to $297$960 million for the nine months ended September 30, 2014;
net cash provided by operating activities of approximately $1.0 billion compared to $1.4 billion for the nine months ended September 30, 2014;2015;
capital expenditures, excluding acquisitions, of approximately $424 million compared to $1.2 billion for the nine months ended September 30, 2014; and

3337

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

average daily production of approximately 1,089 MMcfe/d compared to 1,206 MMcfe/d for the nine months ended September 30, 2015;
net loss of approximately $1.3 billion compared to $2.3 billion for the nine months ended September 30, 2015;
net cash provided by operating activities of approximately $885 million compared to $1.0 billion for the nine months ended September 30, 2015;
capital expenditures of approximately $115 million compared to $424 million for the nine months ended September 30, 2015; and
158 wells drilled (157 successful) compared to 311 wells drilled (308 successful) compared to 678 wells drilled (677 successful) for the nine months ended September 30, 2014.2015.
Reduction and Suspension of DistributionChapter 11 Proceedings
In January 2015,On May 11, 2016 (the “Petition Date”), the Company, reduced its distribution to $1.25 per unit, from the previous level of $2.90 per unit, on an annualized basis. Monthly distributions were paid by the Company through September 2015. In October 2015, following the recommendation from management, the Company’s Board of Directors determined to suspend paymentcertain of the Company’s distributiondirect and reserve any excess cash.indirect subsidiaries, and LinnCo (collectively with the Company, the “LINN Debtors”) and Berry (collectively with the LINN Debtors, the “Debtors”), filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). The Debtors’ Chapter 11 cases are being administered jointly under the caption In re Linn Energy, LLC., et al., Case No. 16‑60040.
The condensed consolidated financial statements have been prepared as if the Company is a going concern and reflect the application of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”). ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in “reorganization items, net” on the Company’s Boardcondensed consolidated statements of Directorsoperations. In addition, prepetition unsecured and management believe this suspensionunder-secured obligations that may be impacted by the bankruptcy reorganization process have been classified as “liabilities subject to compromise” on the Company’s condensed consolidated balance sheet at September 30, 2016. These liabilities are reported at the amounts expected to be inallowed as claims by the best long-term interest of all Company stakeholders. The Company’s Board of Directors will continue to evaluate the Company’s ability to reinstate the distribution. For additional information, see “Distribution Practices” below.
Reduction of 2015 Oil and Natural Gas Capital BudgetBankruptcy Court, although they may be settled for less.
The Company’s 2015 budget includes a 65% reduction in total capital expenditures to approximately $550 million, from approximately $1.6 billion spent in 2014, and includes approximately $470 million related to its oil and natural gas capital program. The 2015 budget contemplates significantly lower commodity pricesDebtors are operating their businesses as compared to 2014, and“debtors-in-possession” under the reductionjurisdiction of the capital budget was intended to solidifyBankruptcy Court and in accordance with the Company’s financial position.
Alliance with GSO Capital Partners
The Company signed definitive agreements dated June 30, 2015, with affiliates of private capital investor GSO Capital Partners LP (“GSO”), the credit platform of The Blackstone Group L.P., to fund oil and natural gas development (“DrillCo”). Funds managed by GSO and its affiliates have agreed to commit up to $500 million with 5-year availability to fund drilling programs on locations provided by LINN Energy. Subject to adjustments depending on asset characteristics and return expectationsapplicable provisions of the selected drilling plan, GSO will fund 100% ofBankruptcy Code. The Bankruptcy Court has granted certain relief requested by the costs associated with new wells drilled under the DrillCo agreement and is expected to receive an 85% working interest in these wells until it achieves a 15% internal rate of return on annual groupings of wells, while LINN Energy is expected to receive a 15% carried working interest during this period. Upon reaching the internal rate of return target, GSO’s interest will be reduced to 5%, while LINN Energy’s interest will increase to 95%.
Alliance with Quantum Energy Partners
The Company signed definitive agreements dated June 30, 2015, with affiliates of private capital investor Quantum Energy Partners (“Quantum”) to fund selected future oil and natural gas acquisitions and the development of those acquired assets (“AcqCo”). See the Company’s Current Report on Form 8-K filed on July 7, 2015, for additional details regarding these agreements.
Divestiture – 2015
On August 31, 2015,Debtors, allowing the Company through certain ofto use its wholly owned subsidiaries, completed the sale of its remaining position in Howard County in the Permian Basin (the “Howard County Assets Sale”). Cash proceeds received from the sale of these properties were approximately $276 million. The Company used the net proceeds from the sale to repay a portion of the outstanding indebtedness under the LINN Credit Facility, which included debt initially incurredcash to fund the repurchaseChapter 11 proceedings, pursuant to an agreement with the first lien lenders, and giving the Company the authority to, among other things, continue to pay employee wages and benefits without interruption, to utilize its current cash management system and to make royalty payments. During the pendency of a portion of its senior notes during 2015 (see Note 6).
Financing Activities
In October 2015, LINN Energy and Berry Petroleum Company, LLC (“Berry”) each entered into an amendment to its credit facility. See Note 6 for additional details.
The spring 2015 semi-annual borrowing base redeterminationthe Chapter 11 proceedings, all transactions outside the ordinary course of the Company’s business require prior approval of the Bankruptcy Court. For goods and services provided following the Petition Date, the Company intends to pay vendors in full under normal terms.
Bank RSA
Prior to the Petition Date, on May 10, 2016, the Debtors entered into a restructuring support agreement (“Bank RSA”) with certain holders (“Consenting Bank Creditors”) collectively holding or controlling at least 66.67% by aggregate outstanding principal amounts under (i) the Company’s Sixth Amended and Restated Credit Facilities, as definedAgreement (“LINN Credit Facility”) and (ii) Berry’s Second Amended and Restated Credit Agreement (“Berry Credit Facility”).
The Bank RSA sets forth, subject to certain conditions, the commitment of the Consenting Bank Creditors to support a comprehensive restructuring of the Debtors’ long-term debt. The restructuring transactions contemplated by the Bank RSA will be effectuated through one or more plans of reorganization (“Plan”) filed in Note 6, was completed in May 2015,the Chapter 11 proceedings.
The Bank RSA provides that the Consenting Bank Creditors will support the use of the LINN Debtors’ and Berry’s cash collateral under specified terms and conditions, including adequate protection terms. The Bank RSA obligates the Debtors and the Consenting Bank Creditors to, among other things, support and not interfere with consummation of the restructuring transactions contemplated by the Bank RSA and, as a resultto the Consenting Bank Creditors, vote their claims in favor of lower commodity prices, the borrowing basePlan. The Bank RSA may be terminated upon the occurrence of certain events, including the failure to meet specified milestones relating to, among other requirements, the filing, confirmation and consummation of the Plan, and in the event of certain breaches by the parties under the LINN Credit Facility decreased from $4.5 billionBank RSA. The Bank RSA is subject to $4.05 billion andtermination if the borrowing base undereffective date of the Berry Credit Facility decreased from $1.4 billion to $1.2 billion. The fall 2015 semi-annual redetermination was completed in October 2015 and the borrowing base under the LINN Credit Facility was reaffirmed at $4.05 billion; however, the borrowing base will automatically decrease to $3.6 billionPlan has not

3438

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

on January 1, 2016, subject to any additional reductions for additional junior lien debt issued since this redetermination, ifoccurred within 250 days of the following conditions are not met on or before December 31, 2015: (i)Petition Date. There can be no assurance that the issuancerestructuring transactions contemplated by the Company of at least $250 million of additional junior lien debt; (ii) repayment and extinguishmentBank RSA will be consummated.
Restructuring Support Agreement
On October 7, 2016, the LINN Debtors entered into a restructuring support agreement (“Original LINN RSA”) with (i) certain holders of the Berry Credit Facility;Company’s 12.00% senior secured second lien notes due December 2020 (such notes, the “Second Lien Notes,” and such holders, the “Consenting Second Lien Noteholders”) and (ii) certain holders of the Company’s unsecured notes (such notes, the “Unsecured Notes,” and such holders of the Unsecured Notes, the “Consenting Unsecured Noteholders,” and together such Consenting Unsecured Noteholders with the Consenting Second Lien Noteholders, the “Consenting Noteholders”).
On October 21, 2016, the LINN Debtors entered into the First Amended and Restated Restructuring Support Agreement (“LINN RSA”) with (i) certain Consenting Second Lien Noteholders, (ii) certain Consenting Unsecured Noteholders and (iii) certain lenders (the “Consenting LINN Lenders,” and together with the guarantee by Berry ofConsenting Noteholders, the “Consenting LINN Credit Facility or the merger or consolidation of Berry with a guarantorCreditors”) under the LINN Credit Facility. Notwithstanding this, borrowing availabilityThe LINN RSA amends and restates the Original LINN RSA and replaces the Bank RSA with respect to the terms of the restructuring of the LINN Debtors. The Bank RSA remains in full force and effect with respect to the restructuring of Berry and Linn Acquisition Company, LLC.
The LINN RSA sets forth, subject to certain conditions, the commitment of the LINN Debtors and the Consenting LINN Creditors to support a comprehensive restructuring of the LINN Debtors’ long-term debt (the “Restructuring”). On October 21, 2016, the Debtors filed a proposed Plan with the Bankruptcy Court. See “Process for Plan of Reorganization” below for certain principal terms of the proposed Plan.
The LINN RSA obligates the LINN Debtors and the Consenting LINN Creditors to, among other things, support and not interfere with consummation of the Restructuring and, as to the Consenting LINN Creditors, vote their claims in favor of the Plan. The LINN RSA may be terminated upon the occurrence of certain events, including the failure to meet specified milestones relating to the filing, confirmation and consummation of the Plan, and in the event of certain breaches by the parties under the LINN Credit Facility will be limitedRSA. The LINN RSA is subject to $3.6 billion (which amount includestermination if the outstanding $500 million term loan) until the earlier of a) January 1, 2016 or b) theeffective date of the actions described inPlan has not occurred by March 1, 2017. There can be no assurance that the prior sentence. The borrowing base under the Berry Credit Facility decreased from $1.2 billion to $900 million.Restructuring will be consummated.
Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs, along with the maturity schedule of the Company’s hedges, may impact future redeterminations.Backstop Commitment Agreement
In connection with the reduction in Berry’s borrowing base inproposed Plan, on October 2015, Berry repaid $300 million of borrowings outstanding under25, 2016, the Berry Credit Facility. In connectionCompany entered into a backstop commitment agreement (“Backstop Commitment Agreement”) with the reduction in Berry’s borrowing base in May 2015, LINN Energy borrowed $250 millionparties thereto (collectively, the “Backstop Parties”), pursuant to which the Backstop Parties, which are also Consenting Noteholders under the LINN Credit Facility, which it contributedRSA, have agreed to Berrybackstop a $530 million new money investment in the LINN Debtors pursuant to post as restricted cash with Berry’s lenders. As directed by LINN Energy, the $250 million was deposited on Berry’s behalfrights offerings to be conducted in a security accountaccordance with the administrative agent subject to a security control agreement. Berry’s ability to withdraw funds from this account is subject to a concurrent reduction ofPlan.
In accordance with the borrowing base underPlan, the Berry Credit Facility or lender’s consent in connection with a redetermination of such borrowing base. The $250 million may be used to satisfy obligations underBackstop Commitment Agreement and the Berry Credit Facility or, subject to restrictionsrights offerings procedures filed in the indentures governing Berry’s senior notes, may be returned toChapter 11 cases, the LINN Energy in the future.
During the nine months ended September 30, 2015, the Company, under its equity distribution agreement, sold 3,621,983 units representing limited liability company interests at an average unit price of $12.37 for net proceeds of approximately $44 million (net of approximately $448,000 in commissions). The Company used the net proceeds for general corporate purposes,Debtors will offer eligible creditors, including the open market repurchases of a portion of its senior notes (see Note 6). At September 30, 2015, units totaling approximately $455 million in aggregate offering price remained availableBackstop Parties, the right to be sold under the agreement.
In May 2015, the Company sold 16,000,000 units representingpurchase new common stock or limited liability company interests in an underwritten public offering at $11.79 per unit ($11.32 per unit, net of underwriting discount) for net proceeds of approximately $181 million (after underwriting discount and offering costs of approximately $8 million). Thethe reorganized Company used the net proceeds(“New Common Stock”) upon emergence from the saleChapter 11 cases for an aggregate purchase price of these units to repay a portion$530 million. The rights offerings will consist of the outstanding indebtedness underfollowing offerings:
Holders of Unsecured Notes as of the LINN Credit Facility, which included debt initially incurredrecord date set therefor shall be granted rights entitling each such holder to fund the open market repurchases of a portion of its senior notes during 2015 (see Note 6).
During the nine months ended September 30, 2015, the Company repurchased, through privately negotiated transactions and on the open market, approximately $783 million of its outstanding senior notes. See Note 6 for additional details.
Commodity Derivatives
During the nine months ended September 30, 2015, the Company entered into commodity derivative contracts consisting of natural gas basis swaps for May 2015 through December 2017 to hedge exposure to differentials in certain producing areas, and oil swaps for April 2015 through December 2015. In addition, the Company entered into natural gas basis swaps for May 2015 through December 2016 to hedge exposuresubscribe to the differentialrights offering in California, where it consumes natural gasan amount up to its pro rata share of New Common Stock (the “Unsecured Rights Offering,” and such New Common Stock offered for purchase thereunder, the “Unsecured Rights Offering Shares”), which Unsecured Rights Offering Shares, collectively, will reflect an aggregate purchase price of $319,004,408 at the per share price set forth in the Backstop Commitment Agreement.
Holders of Second Lien Notes as of the record date set therefor shall be granted rights entitling each such holder to subscribe to the rights offering in an amount up to its heavy oil development operations.pro rata share of New Common Stock (the “Secured Rights Offering,” and such New Common Stock offered for purchase thereunder, the “Secured Rights Offering Shares”), which Secured Rights Offering Shares, collectively, will reflect an aggregate purchase price of $210,995,592 at the per share price set forth in the Backstop Commitment Agreement.
Under the Backstop Commitment Agreement, certain Backstop Parties have agreed to purchase their pro rata share of the Unsecured Rights Offering Shares and the Secured Rights Offering Shares, as applicable, that are not duly subscribed to

3539

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Resultspursuant to the Unsecured Rights Offering or the Secured Rights Offering, as applicable, at the discounted per share price set forth in the Backstop Commitment by parties other than Backstop Parties (the “Backstop Commitment”).
Subject to Bankruptcy Court approval, the LINN Debtors will pay the Backstop Parties on the Plan effective date a commitment premium equal to 4.0% of Operationsthe $530 million committed amount (the “Backstop Commitment Premium”), of which 3.0% will be paid in cash and 1.0% will be paid in the form of New Common Stock at the discounted per share price set forth in the Backstop Commitment Agreement. The Backstop Commitment Premium shall be fully earned and nonrefundable as of the date of the Bankruptcy Court order approving the LINN Debtors’ entry into the Backstop Commitment Agreement. All amounts payable to the Backstop Parties in their capacities as such for the Backstop Commitment Premium shall be paid pro rata based on the amount of their respective Backstop Commitments on the effective date (as compared to the aggregate Backstop Commitment of all Backstop Parties).
Three Months EndedThe rights to purchase New Common Stock in the rights offerings, any shares issued upon exercise thereof, and all shares issued to the Backstop Parties in respect of their Backstop Commitments pursuant to the Backstop Commitment Premium, will be issued in reliance upon the exemption from the registration requirements of the securities laws pursuant to Section 1145 of the Bankruptcy Code. All shares issued to the Backstop Parties pursuant to the Backstop Commitment Agreement in respect of their Backstop Commitment will be issued in reliance upon the exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) thereof and/or Regulation D thereunder. As a condition to the closing of the transactions contemplated by the Backstop Commitment Agreement, the Company will enter into a registration rights agreement with the certain Backstop Parties entitling such Backstop Parties to request that the Company register their securities for sale under the Securities Act at various times.
The Backstop Parties’ commitments to backstop the rights offerings, and the other transactions contemplated by the Backstop Commitment Agreement, are conditioned upon the satisfaction of all conditions to the effectiveness of the Plan and other applicable conditions precedent set forth in the Backstop Commitment Agreement. The issuances of New Common Stock pursuant to the rights offerings and the Backstop Commitment Agreement are conditioned upon, among other things, confirmation of the Plan by the Bankruptcy Court, and the Plan’s effectiveness upon the Company’s emergence from its Chapter 11 cases.
Magnitude of Potential Claims
On July 11, 2016, the Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. The schedules and statements may be subject to further amendment or modification after filing. Holders of prepetition claims are required to file proofs of claims by the applicable deadline for filing certain proofs of claims in the Debtors’ Chapter 11 cases, which was September 30, 2015, Compared16, 2016, for general claims and is November 7, 2016, for governmental claims. Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process.
Rejection of Executory Contracts
Subject to Three Months Ended September 30, 2014certain exceptions, under the Bankruptcy Code, the Debtors may assume, assign or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and satisfaction of certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a prepetition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach. Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Debtors’ estate for damages. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with any of the Debtors in this Quarterly Report on Form 10-Q, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the applicable Debtor, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto.

 Three Months Ended
September 30,
  
 2015 2014 Variance
 (in thousands)
Revenues and other:     
Natural gas sales$156,641
 $221,374
 $(64,733)
Oil sales241,467
 614,407
 (372,940)
NGL sales29,137
 101,677
 (72,540)
Total oil, natural gas and NGL sales427,245
 937,458
 (510,213)
Gains on oil and natural gas derivatives549,029
 451,702
 97,327
Marketing and other revenues22,030
 45,955
 (23,925)
 998,304
 1,435,115
 (436,811)
Expenses:     
Lease operating expenses154,086
 191,630
 (37,544)
Transportation expenses54,915
 53,412
 1,503
Marketing expenses9,359
 31,574
 (22,215)
General and administrative expenses (1)
60,113
 75,384
 (15,271)
Exploration costs3,072
 7,850
 (4,778)
Depreciation, depletion and amortization207,218
 290,287
 (83,069)
Impairment of long-lived assets2,255,080
 603,250
 1,651,830
Taxes, other than income taxes46,238
 66,770
 (20,532)
Gains on sale of assets and other, net(166,980) (35,803) (131,177)
 2,623,101
 1,284,354
 1,338,747
Other income and (expenses)57,657
 (155,894) 213,551
Loss before income taxes(1,567,140) (5,133) (1,562,007)
Income tax expense (benefit)2,177
 (1,033) 3,210
Net loss$(1,569,317) $(4,100) $(1,565,217)
(1)
General and administrative expenses for the three months ended September 30, 2015, and September 30, 2014, include approximately $13 million and $9 million, respectively, of noncash unit-based compensation expenses.

3640

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Effect of Filing on Creditors and Unitholders
Subject to certain exceptions, under the Bankruptcy Code, the filing of Bankruptcy Petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ prepetition liabilities are subject to settlement under the Bankruptcy Code. Although the filing of Bankruptcy Petitions triggered defaults on the Debtors’ debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. The Company did not record interest expense on its Second Lien Notes or senior notes for the three months ended September 30, 2016, or for the period from May 12, 2016, through September 30, 2016. For those periods, unrecorded contractual interest was approximately $100 million and $154 million, respectively.
Under the Bankruptcy Code, unless creditors agree otherwise, prepetition liabilities and postpetition liabilities must be satisfied in full before the holders of the Company’s existing common units representing limited liability company interests (“units”) are entitled to receive any settlement or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or unitholders, if any, will not be determined until confirmation and implementation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 proceedings to each of these constituencies or what types or amounts of settlements, if any, they will receive. A plan of reorganization could result in holders of the Debtors’ liabilities and/or units receiving no settlement on account of their interests and cancellation of their holdings. The Company believes that it is highly likely that its existing units will be canceled in the Chapter 11 proceedings and will be entitled to a limited recovery, if any. Any trading in the Company’s units during the pendency of the Chapter 11 proceedings is highly speculative and poses substantial risks to purchasers of the Company’s units.
Process for Plan of Reorganization
In order to successfully exit bankruptcy, the Debtors will need to propose, and obtain confirmation by the Bankruptcy Court of, a Plan that satisfies the requirements of the Bankruptcy Code. A Plan would, among other things, resolve the Debtors’ prepetition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to exit from bankruptcy.
In addition to being voted on by holders of impaired claims and equity interests, a Plan must satisfy certain requirements of the Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in order to become effective. A Plan would be accepted by holders of claims against and equity interests in the Debtors if (i) at least one-half in number and two-thirds in dollar amount of claims actually voting in each class of claims impaired by the Plan have voted to accept the Plan and (ii) at least two-thirds in amount of equity interests impaired by the Plan actually voting has voted to accept the Plan. A class of claims or equity interests that does not receive or retain any property under the Plan on account of such claims or interests is deemed to have voted to reject the Plan.
Under certain circumstances set forth in Section 1129(b) of the Bankruptcy Code, the Bankruptcy Court may confirm a Plan even if such Plan has not been accepted by all impaired classes of claims and equity interests. The precise requirements and evidentiary showing for confirming a Plan notwithstanding its rejection by one or more impaired classes of claims or equity interests depends upon a number of factors, including the status and seniority of the claims or equity interests in the rejecting class (i.e., unsecured or secured claims, subordinated or senior claims). Generally, with respect to units, a Plan may be “crammed down” even if the unitholders receive no recovery if the proponent of the Plan demonstrates that (1) no class junior to the units are receiving or retaining property under the Plan and (2) no class of claims or interests senior to the units are being paid more than in full.
On October 21, 2016, the Debtors filed a proposed Plan with the Bankruptcy Court. Certain principal terms of the proposed Plan, as filed on October 21, 2016, with respect to the LINN Debtors include:
One or more new legal entities, in a to-be-determined form, will be formed to directly or indirectly hold all of the assets of the LINN Debtors. Following the Restructuring, the LINN Debtors will be standalone companies, separate from Berry.
The holders of claims under the LINN Credit Facility will receive their pro rata share of $1.7 billion reserve-based revolving and term loan credit facilities, as described further below (the “New LINN Exit Facility”), and a cash paydown in an amount that has yet to be determined.

41

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

The Second Lien Notes will be allowed in the aggregate as a $2.0 billion unsecured claim (plus accrued and unpaid interest and reasonable and documented fees and expenses), and the holders of the Second Lien Notes will receive their pro rata share of (i) a to-be-determined percentage of New Common Stock; (ii) certain rights to purchase shares of New Common Stock in the rights offering, as described above; and (iii) $30 million in cash to the extent such holders vote their Second Lien Notes claims to accept the Plan.
The holders of the Company’s Unsecured Notes will receive their pro rata share of (i) a to-be-determined percentage of New Common Stock; and (ii) certain rights to purchase shares of New Common Stock in the rights offering.
The holders of unsecured claims against the Company other than the Unsecured Notes will receive their pro rata share of (i) a to-be-determined percentage of New Common Stock; and (ii) certain rights to purchase shares of New Common Stock, at the same price per share as in the rights offerings, to be issued separate from the rights offerings. Such holders of unsecured claims less than a to-be-determined amount are expected to have the right to elect to receive, in lieu of New Common Stock and rights to purchase shares of New Common Stock, cash in an amount equal to a to-be-determined percentage of such holder’s allowed unsecured claim.
Cash recoveries will be funded with the proceeds of $530 million from the rights offerings of New Common Stock, which will be fully committed to be backstopped by certain of the Consenting Noteholders, as described above.
The board of directors shall consist of seven directors, who shall include: (i) the chief executive officer of the Company, (ii) one director selected by the Company and (iii) five directors selected by a selection committee.
All existing equity interests of the Company will be extinguished without recovery.
The Plan contemplates a New LINN Exit Facility consisting of (i) a term loan in the amount of $300 million (the “New LINN Term Loan”) and (ii) a revolving loan in the initial amount of $1.4 billion (the “New LINN Revolving Loan”). The New LINN Term Loan will mature on the earlier of June 30, 2021, or the day prior to the fourth anniversary of the date of emergence from bankruptcy (the “Closing Date”), with interest payable at LIBOR plus 7.50% and amortized principal payments payable quarterly, beginning March 31, 2017. The New LINN Revolving Loan will be composed of two tranches as follows: (a) a conforming tranche with an initial amount of $1.4 billion subject to the borrowing base (the “Conforming Tranche”), and (b) a non-conforming tranche with an initial amount of $0 (the “Non-Conforming Tranche”). The Conforming Tranche will mature on the earlier of (i) June 30, 2021, or (ii) the day prior to the fourth anniversary of the Closing Date, with an interest rate of LIBOR plus 3.50%. The Non-Conforming Tranche will mature on the earlier of (i) December 31, 2020, or (ii) the day prior to the date that is three years and six months after the Closing Date, with an interest rate of LIBOR plus 5.50%. The New LINN Exit Facility will contain a variety of other terms and conditions including annual year-end borrowing base redeterminations beginning April 1, 2018, conditions precedent to funding, financial and other covenants, and certain representations and warranties.
The Plan also provides for the establishment of a customary employee incentive plan at the reorganized Company under which a pool of equity having a value equal to (i) 8% of the equity value of the reorganized LINN Debtors as of the Plan effective date (the “Company Group Emergence Value”) as follows: (A) 2.5% of the Company Group Emergence Value in the form of restricted stock units to be issued at emergence; (B) 1.5% of the Company Group Emergence Value in the form of profits interests that will vest based on time and performance; and (C) the remaining 4% of the Company Group Emergence Value in a form of equity-based awards as determined by the board of directors of the reorganized Company; and (ii) an additional 2.0% of the Company Group Emergence Value, which will be issued at emergence in the form of profits interests that vest once the equity value of the reorganized LINN Debtors (as equitably adjusted for subsequent contributions and distributions) is equal to 1.5 times the Company Group Emergence Value.
Certain principal terms of the proposed Plan, as filed on October 21, 2016, with respect to Berry include:
The holders of claims under the Berry Credit Facility will receive a full recovery consisting of one or more of the following: (i) a to-be-determined exit financing facility; (ii) a to-be-determined cash paydown; (iii) a to-be-determined percentage of new common stock or limited liability company interests (“New Berry Common Stock”) in the reorganized Berry or its successor in interest (“New Berry”) up to the value of the collateral securing the Berry Credit Facility claims; and (iv) proceeds of any asset sales solely to the extent such assets are the collateral securing the Berry Credit Facility claims.

42

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

The holders of Berry unsecured notes (the “Berry Unsecured Notes”) will receive one or more of the following: (i) New Berry Common Stock; (ii) rights to purchase New Berry Common Stock or other security in New Berry; and (iii) proceeds of any asset sales, after accounting for proceeds required to satisfy the Berry Credit Facility claims.
The holders of unsecured claims against Berry other than the Berry Unsecured Notes will receive one or more of the following: (i) New Berry Common Stock; (ii) rights to purchase New Berry Common Stock or other security in New Berry; and (iii) proceeds of any asset sales, after accounting for proceeds required to satisfy the Berry Credit Facility claims.
Berry will settle all intercompany claims against the LINN Debtors pursuant to a settlement to be approved as part of the Plan, which settlement provides that Berry will have a $25 million general unsecured claim against the Company.
The governance terms of New Berry, as well as the terms of any employee incentive plan, are to be determined. New Berry will be a standalone company, separate from the Company and the LINN Debtors.
All existing equity interests of Berry and Linn Acquisition Company, LLC will be extinguished without recovery.
There can be no assurance at this time that the Debtors will be able to successfully confirm and consummate the Plan.
For the duration of the Company’s Chapter 11 proceedings, the Company’s operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process as described in Item 1A. “Risk Factors.” As a result of these risks and uncertainties, the number of the Company’s units and unitholders, assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 proceedings, and the description of the Company’s operations, properties and capital plans included in this quarterly report may not accurately reflect its operations, properties and capital plans following the Chapter 11 process.
Ability to Continue as a Going Concern
Continued low commodity prices have resulted in significantly lower levels of cash flow from operating activities and have limited the Company’s ability to access the capital markets. In addition, each of the Company’s Credit Facilities is subject to scheduled redeterminations of its borrowing base, semi-annually, based primarily on reserve reports using lender commodity price expectations at such time. The lenders under the Credit Facilities agreed to defer the April 2016 borrowing base redeterminations to May 11, 2016. Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs, along with the termination of the Company’s hedges, were expected to adversely impact upcoming redeterminations and have a significant negative impact on the Company’s liquidity. The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facilities, its Second Lien Notes and its senior notes.
The significant risks and uncertainties related to the Company’s liquidity and Chapter 11 proceedings described above raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. If the Company cannot continue as a going concern, adjustments to the carrying values and classification of its assets and liabilities and the reported amounts of income and expenses could be required and could be material.
In order to decrease the Company’s level of indebtedness and maintain the Company’s liquidity at levels sufficient to meet its commitments, the Company undertook a number of actions, including minimizing capital expenditures and further reducing its recurring operating expenses. Despite taking these actions, the Company did not have sufficient liquidity to satisfy its debt service obligations, meet other financial obligations and comply with its debt covenants. As a result, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code.
Covenant Violations
The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facilities, its Second Lien Notes and its senior notes. Additionally, other events of default, including cross-

43

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

defaults, are present, including the failure to make interest payments on the Company’s Second Lien Notes and senior notes, as well as the receipt of a going concern explanatory paragraph from the Company’s independent registered public accounting firm on the Company’s consolidated financial statements for the year ended December 31, 2015. Under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of an event of default. See Note 6 for additional details about the Company’s debt.
Credit Facilities
The Company’s Credit Facilities contain a requirement to deliver audited consolidated financial statements without a going concern or like qualification or exception. Consequently, the filing of the Company’s 2015 Annual Report on Form 10-K which included such explanatory paragraph resulted in a default under the LINN Credit Facility as of the filing date, March 15, 2016, subject to a 30 day grace period.
On April 12, 2016, the Company entered into amendments to both the LINN Credit Facility and the Berry Credit Facility. The amendments provided for, among other things, an agreement that (i) certain events would not become defaults or events of default until May 11, 2016, (ii) the borrowing bases would remain constant until May 11, 2016, unless reduced as a result of swap agreement terminations or collateral sales and (iii) the Company, the administrative agent and the lenders would negotiate in good faith the terms of a restructuring support agreement in furtherance of a restructuring of the capital structure of the Company and its subsidiaries. In addition, the amendment to the Berry Credit Facility provided Berry with access to previously restricted cash of $45 million in order to fund ordinary course operations.
As a condition to closing the amendments, in April 2016, (a) the Company made a $100 million permanent repayment of a portion of the borrowings outstanding under the LINN Credit Facility and (b) the Company and certain of its subsidiaries provided control agreements over certain deposit accounts.
Pursuant to the terms of the amendment to the LINN Credit Facility and as a result of the execution of the Bank RSA, in May 2016, the Company made a $350 million permanent repayment of a portion of the borrowings outstanding under the LINN Credit Facility.
The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the Credit Facilities. However, under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of the default.
Second Lien Notes
The indenture governing the Second Lien Notes (“Second Lien Indenture”) required the Company to deliver mortgages by February 18, 2016, subject to a 45 day grace period. The Company elected to exercise its right to the grace period, which resulted in the Company being in default under the Second Lien Indenture.
On April 4, 2016, the Company entered into a settlement agreement with certain holders of the Second Lien Notes and agreed to deliver, and make arrangements for recordation of, the mortgages. The Company has since delivered and made arrangements for recordation of the mortgages.
The settlement agreement required the parties to commence good faith negotiations with each other regarding the terms of a potential comprehensive and consensual restructuring, including a potential restructuring under a Chapter 11 plan of reorganization. The settlement agreement provided that in the event the parties were unable to reach agreement on the terms of a consensual restructuring on or before the commencement of such Chapter 11 proceedings (or such later date as mutually agreed to by the parties), the parties would support entry by the Bankruptcy Court of a settlement order that, among other things, (i) approves the issuance of additional notes, in the principal amount of $1.0 billion plus certain accrued interest, on a proportionate basis to existing holders of the Second Lien Notes and (ii) releases the mortgages and other collateral upon the issuance of the additional notes (the “Settlement Order”).
The settlement agreement will terminate upon, among other events, entry by the Bankruptcy Court of a final, non-appealable order denying the Company’s motion seeking entry of the Settlement Order.
The Company failed to make an interest payment on its Second Lien Notes of approximately $68 million due June 15, 2016.

44

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the Second Lien Indenture. However, under the Bankruptcy Code, holders of the Second Lien Notes are stayed from taking any action against the Company as a result of the default.
Senior Notes
The Company deferred making interest payments totaling approximately $60 million due March 15, 2016, including approximately $30 million on LINN Energy’s 7.75% senior notes due February 2021, approximately $12 million on LINN Energy’s 6.50% senior notes due September 2021 and approximately $18 million on Berry’s 6.375% senior notes due September 2022, which resulted in the Company being in default under these senior notes. The indentures governing each of the applicable series of notes provided the Company a 30 day grace period to make the interest payments.
On April 14, 2016, within the 30 day interest payment grace period provided for in the indentures governing the notes, the Company and Berry made interest payments of approximately $60 million in satisfaction of their respective obligations.
The Company failed to make interest payments due on its senior notes subsequent to April 14, 2016.
The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the indentures governing the senior notes. However, under the Bankruptcy Code, holders of the senior notes are stayed from taking any action against the Company as a result of the default.
Commodity Derivatives
In October 2016, the Company entered into commodity derivative contracts consisting of oil swaps for November 2016 through December 2017 and natural gas swaps for January 2017 through December 2018. Including these new hedges, as of October 31, 2016, the Company had oil swaps of 610 MBbls at an average price of $50.91 per Bbl for the remainder of 2016 and 2,373 MBbls at an average price of $51.74 per Bbl for 2017, and natural gas swaps of 22,265 MMMBtus at an average price of $3.05 per MMBtu for the remainder of 2016, 113,150 MMMBtus at an average price of $3.14 per MMBtu for 2017 and 14,600 MMMBtus at an average price of $3.01 per MMBtu for 2018.
In September 2016, the Company entered into commodity derivative contracts consisting of natural gas swaps for October 2016 through December 2017 and oil swaps for January 2017 through December 2017.
In April 2016 and May 2016, in connection with the Company’s restructuring efforts, LINN Energy canceled (prior to the contract settlement dates) all of its then-outstanding derivative contracts for net proceeds of approximately $1.2 billion. The net proceeds were used to make permanent repayments of a portion of the borrowings outstanding under the LINN Credit Facility. Also, in May 2016 and July 2016, as a result of the Chapter 11 proceedings, Berry’s counterparties canceled (prior to the contract settlement dates) all of Berry’s then-outstanding derivative contracts for net proceeds of approximately $2 million. The net proceeds were used to make permanent repayments of a portion of the borrowings outstanding under the Berry Credit Facility.
Offer to Exchange LINN Energy Units for LinnCo Shares
In March 2016, LinnCo filed a Registration Statement on Form S-4 related to an offer to exchange each outstanding unit representing limited liability company interests of LINN Energy for one common share representing limited liability company interests of LinnCo. The initial offer expired on April 25, 2016, and on April 26, 2016, LinnCo commenced a subsequent offering period that expired on August 1, 2016. During the exchange period, 123,100,715 LINN Energy units were exchanged for an equal number of LinnCo shares. As a result of the exchanges of LINN Energy units for LinnCo shares, LinnCo’s ownership of LINN Energy’s outstanding units increased from approximately 37% at December 31, 2015, to approximately 71% at September 30, 2016.
2016 Oil and Natural Gas Capital Budget
For 2016, the Company estimates its total capital expenditures, excluding acquisitions, will be approximately $235 million, including approximately $160 million related to its oil and natural gas capital program and approximately $60 million related to its plant and pipeline capital. The 2016 budget contemplates continued low commodity prices and is under continuous review

45

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

and subject to ongoing adjustments. The Company expects to fund its capital expenditures primarily from net cash provided by operating activities; however, there is uncertainty regarding the Company’s liquidity as discussed above. In addition, at this level of capital spending, the Company expects its total reserves to decline.
Financing Activities
See above for a description of the amendments to the Credit Facilities entered into in April 2016. During the nine months ended September 30, 2016, the Company borrowed approximately $979 million under the LINN Credit Facility and made repayments of approximately $1.8 billion of a portion of the borrowings outstanding under the Credit Facilities and term loan. The repayments include approximately $841 million in commodity derivative settlements paid by the counterparties to the lenders under the LINN Credit Facility. As of September 30, 2016, total borrowings outstanding (including outstanding letters of credit) under the LINN Credit Facility and the Berry Credit Facility were approximately $1.9 billion and $898 million, respectively, with no remaining availability for either.
Delisting from Stock Exchange
As a result of the Company’s failure to comply with the NASDAQ Global Select Market (“NASDAQ”) continued listing requirements, on May 24, 2016, the Company’s units began trading over the counter on the OTC Markets Group Inc.’s Pink marketplace under the trading symbol “LINEQ.”

46

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Results of Operations
Three Months Ended September 30, 2016, Compared to Three Months Ended September 30, 2015
 Three Months Ended
September 30,
  
 2015 2014 Variance
Average daily production:     
Natural gas (MMcf/d)644
 600
 7 %
Oil (MBbls/d)63.1
 74.0
 (15)%
NGL (MBbls/d)29.2
 33.5
 (13)%
Total (MMcfe/d)1,198
 1,245
 (4)%
      
Weighted average prices: (1)
     
Natural gas (Mcf)$2.64
 $4.01
 (34)%
Oil (Bbl)$41.58
 $90.31
 (54)%
NGL (Bbl)$10.84
 $33.01
 (67)%
      
Average NYMEX prices:     
Natural gas (MMBtu)$2.77
 $4.06
 (32)%
Oil (Bbl)$46.43
 $97.17
 (52)%
      
Costs per Mcfe of production:     
Lease operating expenses$1.40
 $1.67
 (16)%
Transportation expenses$0.50
 $0.47
 6 %
General and administrative expenses (2)
$0.55
 $0.66
 (17)%
Depreciation, depletion and amortization$1.88
 $2.54
 (26)%
Taxes, other than income taxes$0.42
 $0.58
 (28)%
 Three Months Ended
September 30,
  
 2016 2015 Variance
 (in thousands)
Revenues and other:     
Natural gas sales$141,193
 $156,641
 $(15,448)
Oil sales179,796
 241,467
 (61,671)
NGL sales39,154
 29,137
 10,017
Total oil, natural gas and NGL sales360,143
 427,245
 (67,102)
Gains on oil and natural gas derivatives274
 549,029
 (548,755)
Marketing and other revenues25,248
 22,030
 3,218
 385,665
 998,304
 (612,639)
Expenses:     
Lease operating expenses117,470
 154,086
 (36,616)
Transportation expenses49,630
 54,915
 (5,285)
Marketing expenses12,191
 9,359
 2,832
General and administrative expenses (1)
50,202
 60,113
 (9,911)
Exploration costs4
 3,072
 (3,068)
Depreciation, depletion and amortization142,448
 207,218
 (64,770)
Impairment of long-lived assets41,728
 2,255,080
 (2,213,352)
Taxes, other than income taxes15,383
 46,238
 (30,855)
(Gains) losses on sale of assets and other, net1,940
 (166,980) 168,920
 430,996
 2,623,101
 (2,192,105)
Other income and (expenses)(40,374) 57,657
 (98,031)
Reorganization items, net(116,276) 
 (116,276)
Loss before income taxes(201,981) (1,567,140) 1,365,159
Income tax expense (benefit)(3,616) 2,177
 (5,793)
Net loss$(198,365) $(1,569,317) $1,370,952
(1)
General and administrative expenses for the three months ended September 30, 2016, and September 30, 2015, include approximately $5 million and $13 million, respectively, of noncash unit-based compensation expenses.

47

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

 Three Months Ended
September 30,
  
 2016 2015 Variance
Average daily production:     
Natural gas (MMcf/d)597
 644
 (7)%
Oil (MBbls/d)49.6
 63.1
 (21)%
NGL (MBbls/d)30.0
 29.2
 3 %
Total (MMcfe/d)1,075
 1,198
 (10)%
      
Weighted average prices: (1)
     
Natural gas (Mcf)$2.57
 $2.64
 (3)%
Oil (Bbl)$39.37
 $41.58
 (5)%
NGL (Bbl)$14.17
 $10.84
 31 %
      
Average NYMEX prices:     
Natural gas (MMBtu)$2.81
 $2.77
 1 %
Oil (Bbl)$44.94
 $46.43
 (3)%
      
Costs per Mcfe of production:     
Lease operating expenses$1.19
 $1.40
 (15)%
Transportation expenses$0.50
 $0.50
 
General and administrative expenses (2)
$0.51
 $0.55
 (7)%
Depreciation, depletion and amortization$1.44
 $1.88
 (23)%
Taxes, other than income taxes$0.16
 $0.42
 (62)%
(1) 
Does not include the effect of gains (losses) on derivatives.
(2) 
General and administrative expenses for the three months ended September 30, 2015,2016, and September 30, 2014,2015, include approximately $13$5 million and $9$13 million, respectively, of noncash unit-based compensation expenses.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Revenues and Other
Oil, Natural Gas and NGL Sales
Oil, natural gas and NGL sales decreased by approximately $510$67 million or 54%16% to approximately $360 million for the three months ended September 30, 2016, from approximately $427 million for the three months ended September 30, 2015, from approximately $937 million for the three months ended September 30, 2014, due to lower oil and natural gas and NGL prices and lower production volumes.volumes, partially offset by higher NGL prices. Lower oil and natural gas and NGL prices resulted in a decrease in revenues of approximately $283 million, $81$10 million and $59$4 million, respectively. Higher NGL prices resulted in an increase in revenues of approximately $9 million.
Average daily production volumes decreased to approximately 1,075 MMcfe/d for the three months ended September 30, 2016, from 1,198 MMcfe/d for the three months ended September 30, 2015, from 1,245 MMcfe/d for the three months ended September 30, 2014.2015. Lower oil and NGLnatural gas production volumes resulted in a decrease in revenues of approximately $90$52 million and $13$11 million, respectively. Higher natural gasNGL production volumes resulted in an increase in revenues of approximately $16$1 million.
The following table sets forth average daily production by region:
Three Months Ended
September 30,
    Three Months Ended
September 30,
    
2015 2014 Variance2016 2015 Variance
Average daily production (MMcfe/d):              
Rockies429
 333
 96
 29 %396
 429
 (33) (8)%
Hugoton Basin254
 201
 53
 27 %236
 254
 (18) (7)%
California183
 172
 11
 6 %148
 183
 (35) (19)%
Mid-Continent105
 289
 (184) (64)%102
 105
 (3) (2)%
TexLa80
 87
 (7) (8)%
Permian Basin77
 154
 (77) (50)%54
 77
 (23) (30)%
TexLa87
 51
 36
 71 %
Michigan/Illinois30
 31
 (1) (2)%
South Texas32
 12
 20
 158 %29
 32
 (3) (9)%
Michigan/Illinois31
 33
 (2) (8)%
1,198
 1,245
 (47) (4)%1,075
 1,198
 (123) (10)%
The increasedecreases in average daily production volumes in the Rockies region primarily reflects the impactreflect lower production volumes as a result of the acquisition of properties from subsidiaries of Devon Energy Corporation (the “Devon Assets Acquisition”) on August 29, 2014, andreduced development capital spending. The increase in average daily production volumes inspending throughout the Hugoton Basin region primarily reflects the impact of the properties received in the exchange with Exxon Mobil Corporation and its affiliates, including its wholly owned subsidiary XTO Energy Inc. (“Exxon XTO”), on August 15, 2014, and the acquisition of properties from Pioneer Natural Resources Company (the “Pioneer Assets Acquisition”) on September 11, 2014. The increase in average daily production volumes in the California region primarily reflects the impact of the properties received in the exchange with Exxon Mobil Corporation (“ExxonMobil”) on November 21, 2014, and development capital spending.Company’s various operating regions, as well as marginal well shut-ins, driven by continued low commodity prices. The decrease in average daily production volumes in California also reflects operational challenges in the Mid-Continent region primarily reflects lower production volumes as a result ofCompany’s Diatomite development program, where the properties soldCompany is pursuing various remedies to privately held institutional affiliates of EnerVest, Ltd.address wells performance and its joint venture partner FourPoint Energy, LLC (the “Granite Wash Assets Sale”) on December 15, 2014, partially offset by the impact of the Devon Assets Acquisition.has temporarily curtailed capital spending in this program. The decrease in average daily production volumes in the Permian Basin region primarilyalso reflects lower production volumes as a result of the properties relinquished in the two exchanges with Exxon XTO and ExxonMobil, the properties sold to Fleur de Lis Energy, LLC (the “Permian Basin Assets Sale”) on November 14, 2014, and the Howard County Assets Saleassets sale on August 31, 2015. The increase in average daily production volumes in the TexLa region primarily reflects the impact of the Devon Assets Acquisition. Average daily production volumes in the South Texas region reflect the impact of the Devon Assets Acquisition. The decrease in average daily production volumes in the Michigan/Illinois region primarily reflects a low-decline asset base and minimal development capital spending.
Gains (Losses) on Oil and Natural Gas Derivatives
Gains on oil and natural gas derivatives were approximately $549 million$274,000 and $452$549 million for the three months ended September 30, 2015,2016, and September 30, 2014,2015, respectively, representing an increasea decrease of approximately $97$549 million. Gains on oil and natural gas derivatives were primarily due to changes in fair value of the derivative contracts. The fair value on unsettled derivatives contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are

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Table of Contents
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized.
During the three months ended September 30, 2015, the Company had commodity derivative contracts for approximately 81% of its natural gas production and 87% of its oil production. During the three months ended September 30, 2014, the Company had commodity derivative contracts for approximately 81% of its natural gas production and 93% of its oil production. The Company does not hedge the portion of natural gas production used to economically offset natural gas consumption related to its heavy oil development operations in California.
The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and Note 7 and Note 8 for additional information about the Company’s commodity derivatives. For information about the Company’s credit risk related to derivative contracts, see “Counterparty Credit Risk” under “Liquidity and Capital Resources” below.
Marketing and Other Revenues
Marketing revenues represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing and other revenues decreased by approximately $24 million or 52% to approximately $22 million for the three months ended September 30, 2015, from approximately $46 million for the three months ended September 30, 2014. The decrease was primarily due to lower revenues generated by the Jayhawk natural gas processing plant in Kansas, lower electricity sales revenues generated by the Company’s California cogeneration facilities and the impact of properties sold during the fourth quarter of 2014, partially offset by higher helium sales revenue in the Hugoton Basin.
Expenses
Lease Operating Expenses
Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $38 million or 20% to approximately $154 million for the three months ended September 30, 2015, from approximately $192 million for the three months ended September 30, 2014. The decrease was primarily due to lower costs as a result of the properties sold during the fourth quarter of 2014, a decrease in steam costs caused by lower prices for natural gas used in steam generation and cost savings initiatives, partially offset by costs associated with properties acquired during the third quarter of 2014. Lease operating expenses per Mcfe also decreased to $1.40 per Mcfe for the three months ended September 30, 2015, from $1.67 per Mcfe for the three months ended September 30, 2014.
Transportation Expenses
Transportation expenses increased by approximately $2 million or 3% to approximately $55 million for the three months ended September 30, 2015, from approximately $53 million for the three months ended September 30, 2014. The increase was primarily due to costs associated with properties acquired during the third quarter of 2014 partially offset by lower costs as a result of the properties sold during the fourth quarter of 2014. Transportation expenses per Mcfe also increased to $0.50 per Mcfe for the three months ended September 30, 2015, from $0.47 per Mcfe for the three months ended September 30, 2014.
Marketing Expenses
Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses decreased by approximately $23 million or 70% to approximately $9 million for the three months ended September 30, 2015, from approximately $32 million for the three months ended September 30, 2014. The decrease was primarily due to lower expenses associated with the Jayhawk natural gas processing plant in Kansas and lower electricity generation expenses incurred by the Company’s California cogeneration facilities.
General and Administrative Expenses
General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses decreased by approximately $15 million or 20% to approximately $60 million for the three months ended September 30, 2015, from approximately $75 million for the three months ended September 30, 2014. The decrease was primarily due to lower acquisition expenses and salaries and benefits related expenses. General and administrative expenses per Mcfe also decreased

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

to $0.55 per Mcfe for the three months ended September 30, 2015, from $0.66 per Mcfe for the three months ended September 30, 2014.
Exploration Costs
Exploration costs decreased by approximately $5 million or 61% to approximately $3 for the three months ended September 30, 2015, from approximately $8 million for the three months ended September 30, 2014. The decrease was primarily due to lower leasehold impairment expenses on unproved properties partially offset by higher seismic data expenses.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased by approximately $83 million or 29% to approximately $207 million for the three months ended September 30, 2015, from approximately $290 million for the three months ended September 30, 2014. The decrease was primarily due to the divestitures of properties in 2014 with higher rates compared to the rates of properties acquired in 2014, as well as lower rates as a result of the impairments recorded in the prior year and the first quarter of 2015, and lower total production volumes. Depreciation, depletion and amortization per Mcfe also decreased to $1.88 per Mcfe for the three months ended September 30, 2015, from $2.54 per Mcfe for the three months ended September 30, 2014.
Impairment of Long-Lived Assets
The Company recorded the following noncash impairment charges (before and after tax) associated with proved oil and natural gas properties:
 Three Months Ended
September 30,
 2015 2014
 (in thousands)
    
Rockies region$1,182,337
 $
California region330,311
 
TexLa region375,567
 
Mid-Continent region366,865
 
Permian Basin region
 603,250
 $2,255,080
 $603,250
The impairment charges in 2015 were due to a decline in commodity prices and the Company’s estimates of proved reserves, and the impairment in 2014 was due to the divestiture of certain high valued unproved properties in the Midland Basin in which the expected cash flows were previously included in the impairment assessment for proved oil and natural gas properties.
Gains on Sale of Assets and Other, Net
During the three months ended September 30, 2015, the Company recorded a net gain of approximately $174 million, including costs to sell of approximately $1 million, on the Howard County Assets Sale. During the three months ended September 30, 2014, the Company recorded a net gain of approximately $45 million, including costs to sell of approximately $3 million, on the noncash exchange of a portion of its Permian Basin properties to Exxon XTO for properties in the Hugoton Basin. See Note 2 for additional details of the divestiture and exchange of properties.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Taxes, Other Than Income Taxes
 Three Months Ended
September 30,
  
 2015 2014 Variance
 (in thousands)
      
Severance taxes$14,621
 $37,986
 $(23,365)
Ad valorem taxes26,027
 24,513
 1,514
California carbon allowances5,548
 4,202
 1,346
Other42
 69
 (27)
 $46,238
 $66,770
 $(20,532)
Taxes, other than income taxes decreased by approximately $21 million or 31% for the three months ended September 30, 2015, compared to the three months ended September 30, 2014. Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower oil, natural gas and NGL prices and lower production volumes. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, increased primarily due to acquisitions completed during the third quarter of 2014. California carbon allowances increased primarily due to an increase in estimated emissions for which credits are needed and higher costs for acquired allowances.
Other Income and (Expenses)
 Three Months Ended
September 30,
  
 2015 2014 Variance
 (in thousands)
      
Interest expense, net of amounts capitalized$(138,383) $(154,047) $15,664
Gain on extinguishment of debt197,741
 
 197,741
Other, net(1,701) (1,847) 146
 $57,657
 $(155,894) $213,551
Other income and (expenses) decreased by approximately $214 million for the three months ended September 30, 2015, compared to the three months ended September 30, 2014. Interest expense decreased primarily due to lower outstanding debt during the period and lower amortization of financing fees and expenses primarily related to the bridge loan and term loan that were repaid during 2014, partially offset by a decrease in capitalized interest. In addition, for the three months ended September 30, 2015, the Company recorded a gain on extinguishment of debt of approximately $198 million as a result of the repurchases of a portion of its senior notes. See “Debt” under “Liquidity and Capital Resources” below for additional details.
Income Tax Expense (Benefit)
The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Company’s subsidiaries are Subchapter C-corporations subject to federal and state income taxes. The Company recognized income tax expense of approximately $2 million for the three months ended September 30, 2015, compared to an income tax benefit of approximately $1 million for the three months ended September 30, 2014. The income tax expense is primarily due to higher income from the Company’s taxable subsidiaries during the three months ended September 30, 2015, compared to the same period in 2014.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Net Income (Loss)
Net loss increased to approximately $1.6 billion for the three months ended September 30, 2015, from approximately $4 million for the three months ended September 30, 2014. The increase was primarily due to higher impairment charges and lower production revenues, partially offset by lower other expenses and higher gains on oil and natural gas derivatives. See discussions above for explanations of variances.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Results of Operations
Nine Months Ended September 30, 2015, Compared to Nine Months Ended September 30, 2014
 Nine Months Ended
September 30,
  
 2015 2014 Variance
 (in thousands)
Revenues and other:     
Natural gas sales$478,645
 $653,113
 $(174,468)
Oil sales787,158
 1,861,561
 (1,074,403)
NGL sales108,430
 329,511
 (221,081)
Total oil, natural gas and NGL sales1,374,233
 2,844,185
 (1,469,952)
Gains (losses) on oil and natural gas derivatives782,622
 (198,579) 981,201
Marketing and other revenues79,824
 120,047
 (40,223)
 2,236,679
 2,765,653
 (528,974)
Expenses:     
Lease operating expenses467,759
 570,564
 (102,805)
Transportation expenses164,250
 143,896
 20,354
Marketing expenses47,359
 75,920
 (28,561)
General and administrative expenses (1)
237,731
 221,518
 16,213
Exploration costs4,032
 10,492
 (6,460)
Depreciation, depletion and amortization637,964
 832,523
 (194,559)
Impairment of long-lived assets2,787,697
 603,250
 2,184,447
Taxes, other than income taxes158,317
 201,014
 (42,697)
Gains on sale of assets and other, net(197,263) (27,750) (169,513)
 4,307,846
 2,631,427
 1,676,419
Other income and (expenses)(224,117) (428,859) 204,742
Loss before income taxes(2,295,284) (294,633) (2,000,651)
Income tax expense (benefit)(7,680) 2,674
 (10,354)
Net loss$(2,287,604) $(297,307) $(1,990,297)
(1)
General and administrative expenses for the nine months ended September 30, 2015, and September 30, 2014, include approximately $41 million and $37 million, respectively, of noncash unit-based compensation expenses.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

 Nine Months Ended
September 30,
  
 2015 2014 Variance
Average daily production:     
Natural gas (MMcf/d)654
 525
 25 %
Oil (MBbls/d)63.6
 73.2
 (13)%
NGL (MBbls/d)28.5
 32.6
 (13)%
Total (MMcfe/d)1,206
 1,160
 4 %
      
Weighted average prices: (1)
     
Natural gas (Mcf)$2.68
 $4.56
 (41)%
Oil (Bbl)$45.36
 $93.10
 (51)%
NGL (Bbl)$13.94
 $37.01
 (62)%
      
Average NYMEX prices:     
Natural gas (MMBtu)$2.80
 $4.55
 (38)%
Oil (Bbl)$51.00
 $99.61
 (49)%
      
Costs per Mcfe of production:     
Lease operating expenses$1.42
 $1.80
 (21)%
Transportation expenses$0.50
 $0.45
 11 %
General and administrative expenses (2)
$0.72
 $0.70
 3 %
Depreciation, depletion and amortization$1.94
 $2.63
 (26)%
Taxes, other than income taxes$0.48
 $0.63
 (24)%
(1)
Does not include the effect of gains (losses) on derivatives.
(2)
General and administrative expenses for the nine months ended September 30, 2015, and September 30, 2014, include approximately $41 million and $37 million, respectively, of noncash unit-based compensation expenses.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Revenues and Other
Oil, Natural Gas and NGL Sales
Oil, natural gas and NGL sales decreased by approximately $1.4 billion or 52% to approximately $1.4 billion for the nine months ended September 30, 2015, from approximately $2.8 billion for the nine months ended September 30, 2014, due to lower oil, natural gas and NGL prices partially offset by higher production volumes. Lower oil, natural gas and NGL prices resulted in a decrease in revenues of approximately $829 million, $334 million and $179 million, respectively.
Average daily production volumes increased to approximately 1,206 MMcfe/d for the nine months ended September 30, 2015, from 1,160 MMcfe/d for the nine months ended September 30, 2014. Lower oil and NGL production volumes resulted in a decrease in revenues of approximately $246 million and $42 million, respectively. Higher natural gas production volumes resulted in an increase in revenues of approximately $160 million.
The following table sets forth average daily production by region:
 Nine Months Ended
September 30,
    
 2015 2014 Variance
Average daily production (MMcfe/d):       
Rockies433
 295
 138
 47 %
Hugoton Basin252
 165
 87
 52 %
California187
 167
 20
 12 %
Mid-Continent102
 295
 (193) (65)%
Permian Basin85
 163
 (78) (48)%
TexLa82
 38
 44
 115 %
South Texas34
 4
 30
 724 %
Michigan/Illinois31
 33
 (2) (6)%
 1,206
 1,160
 46
 4 %
The increase in average daily production volumes in the Rockies region primarily reflects the impact of the Devon Assets Acquisition on August 29, 2014, and development capital spending. The increase in average daily production volumes in the Hugoton Basin region primarily reflects the impact of the properties received in the exchange with Exxon XTO on August 15, 2014, and the Pioneer Assets Acquisition on September 11, 2014. The increase in average daily production volumes in the California region primarily reflects the impact of the properties received in the exchange with ExxonMobil on November 21, 2014, and development capital spending. The decrease in average daily production volumes in the Mid-Continent region primarily reflects lower production volumes as a result of the Granite Wash Assets Sale on December 15, 2014, partially offset by the impact of the Devon Assets Acquisition.  The decrease in average daily production volumes in the Permian Basin region primarily reflects lower production volumes as a result of the properties relinquished in the two exchanges with Exxon XTO and ExxonMobil, the properties sold in the Permian Basin Assets Sale on November 14, 2014, and the Howard County Assets Sale on August 31, 2015. The increase in average daily production volumes in the TexLa region primarily reflects the impact of the Devon Assets Acquisition. Average daily production volumes in the South Texas region reflect the impact of the Devon Assets Acquisition. The decrease in average daily production volumes in the Michigan/Illinois region primarily reflects a low-decline asset base and minimal development capital spending.
Gains (Losses) on Oil and Natural Gas Derivatives
Gains on oil and natural gas derivatives were approximately $783 million for the nine months ended September 30, 2015, compared to losses of approximately $199 million for the nine months ended September 30, 2014, representing a variance of approximately $982 million. Gains on oil and natural gas derivatives were primarily due to changes in fair value of the derivative contracts. The fair value on unsettled derivatives contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized.
See above under “Executive Overview” for details about the Company’s commodity derivatives cancellations in 2016.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

During the nine months ended September 30, 2015, the Company had commodity derivative contracts for approximately 80% of both its natural gas and oil production. During the nine months ended September 30, 2014, the Company had commodity derivative contracts for approximately 92% of its natural gas production and 93% of its oil production. The Company does not hedge the portion of natural gas production used to economically offset natural gas consumption related to its heavy oil development operations in California.
The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and Note 7 and Note 8 for additional details about the Company’s commodity derivatives. For information about the Company’s credit risk related to derivative contracts, see “Counterparty Credit Risk” under “Liquidity and Capital Resources” below.
Marketing and Other Revenues
Marketing revenues represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing and other revenues increased by approximately $3 million or 15% to approximately $25 million for the three months ended September 30, 2016, from approximately $22 million for the three months ended September 30, 2015. The increase was primarily due to higher revenues generated by the Jayhawk natural gas processing plant in Kansas and higher helium sales revenue in the Hugoton Basin, partially offset by lower electricity sales revenues generated by the Company’s California cogeneration facilities.
Expenses
Lease Operating Expenses
Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $37 million or 24% to approximately $117 million for the three months ended September 30, 2016, from approximately $154 million for the three months ended September 30, 2015. The decrease was primarily due to cost savings initiatives and lower workover activities, as well as a decrease in steam costs caused by a decrease in steam injection volumes. Lease operating expenses per Mcfe also decreased to $1.19 per Mcfe for the three months ended September 30, 2016, from $1.40 per Mcfe for the three months ended September 30, 2015.
Transportation Expenses
Transportation expenses decreased by approximately $5 million or 10% to approximately $50 million for the three months ended September 30, 2016, from approximately $55 million for the three months ended September 30, 2015. The decrease was primarily due to reduced costs as a result of certain contracts terminated in the Chapter 11 proceedings and lower production volumes, partially offset by higher costs from nonoperated properties in the Rockies region. Transportation expenses per Mcfe remained consistent at $0.50 per Mcfe for both the three months ended September 30, 2016, and September 30, 2015.
Marketing Expenses
Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses increased by approximately $3 million or 30% to approximately $12 million for the three months ended September 30, 2016, from approximately $9 million for the three months ended September 30, 2015. The increase was primarily due to higher expenses associated with the Jayhawk natural gas processing plant in Kansas.
General and Administrative Expenses
General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses decreased by approximately $10 million or 16% to approximately $50 million for the three months ended September 30, 2016, from approximately $60 million for the three months ended September 30, 2015. The decrease was primarily due to lower salaries and benefits related expenses, lower professional services expenses and lower acquisition expenses. General and administrative expenses per Mcfe also decreased to $0.51 per Mcfe for the three months ended September 30, 2016, from $0.55 per Mcfe for the three months ended September 30, 2015.
Professional services expenses of approximately $26 million for the three months ended September 30, 2016, related to the Chapter 11 proceedings that were incurred since the Petition Date, have been recorded in “reorganization items, net” on the condensed consolidated statement of operations.
Exploration Costs
Exploration costs decreased by approximately $3 million to approximately $4,000 for the three months ended September 30, 2016, from approximately $3 million for the three months ended September 30, 2015. The decrease was primarily due to lower seismic data expenses and lower leasehold impairment expenses on unproved properties.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased by approximately $65 million or 31% to approximately $142 million for the three months ended September 30, 2016, from approximately $207 million for the three months ended September 30, 2015. The decrease was primarily due to lower rates as a result of the impairments recorded in the prior year and the first quarter of 2016, as well as lower total production volumes. Depreciation, depletion and amortization per Mcfe also decreased to $1.44 per Mcfe for the three months ended September 30, 2016, from $1.88 per Mcfe for the three months ended September 30, 2015.
Impairment of Long-Lived Assets
The Company recorded the following noncash impairment charges (before and after tax) associated with proved oil and natural gas properties:
 Three Months Ended
September 30,
 2016 2015
 (in thousands)
    
Rockies region$23,142
 $1,182,337
Mid-Continent region18,586
 366,865
TexLa region
 375,567
California region
 330,311
 $41,728
 $2,255,080
The impairment charges for both the three months ended September 30, 2016 and September 30, 2015, were due to a decline in commodity prices.
(Gains) Losses on Sale of Assets and Other, Net
During the three months ended September 30, 2015, the Company recorded a net gain of approximately $174 million, including costs to sell of approximately $1 million, on the sale of its remaining position in Howard County in the Permian Basin (the “Howard County Assets Sale”).
Taxes, Other Than Income Taxes
 Three Months Ended
September 30,
  
 2016 2015 Variance
 (in thousands)
      
Severance taxes$14,544
 $14,621
 $(77)
Ad valorem taxes(2,479) 26,027
 (28,506)
California carbon allowances3,261
 5,548
 (2,287)
Other57
 42
 15
 $15,383
 $46,238
 $(30,855)
Taxes, other than income taxes decreased by approximately $31 million or 67% for the three months ended September 30, 2016, compared to the three months ended September 30, 2015. Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower oil and natural gas prices and lower production volumes, partially offset by reduced incentives on certain wells in the Rockies region for the three months ended September 30, 2016, compared to the same period in 2015. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, decreased primarily due to lower estimated valuations on certain of the Company’s properties. California carbon allowances decreased primarily due to lower anticipated emissions compliance obligations as a result of reduced capital spending levels and a decrease in steam injection volumes.

51

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Other Income and (Expenses)
 Three Months Ended
September 30,
  
 2016 2015 Variance
 (in thousands)
      
Interest expense, net of amounts capitalized$(40,105) $(138,383) $98,278
Gain on extinguishment of debt
 197,741
 (197,741)
Other, net(269) (1,701) 1,432
 $(40,374) $57,657
 $(98,031)
Other income and (expenses) decreased by approximately $98 million for the three months ended September 30, 2016, compared to the three months ended September 30, 2015. Interest expense decreased primarily due to the Company’s discontinuation of interest expense recognition on the senior notes as a result of the Chapter 11 proceedings, lower outstanding debt during the period principally as a result of the senior notes repurchased and exchanged during 2015, and lower amortization of discounts and financing fees. For the three months ended September 30, 2016, contractual interest, which was not recorded, on the senior notes was approximately $70 million. For the three months ended September 30, 2015, the Company recorded a gain on extinguishment of debt of approximately $198 million as a result of the repurchases of a portion of its senior notes. Other expenses decreased primarily due to lower write-offs of deferred financing fees related to the Credit Facilities and lower bank fees. See “Debt” under “Liquidity and Capital Resources” below for additional details.
The $1.0 billion in aggregate principal amount of Second Lien Notes issued in November 2015 were accounted for as a troubled debt restructuring, which requires that interest payments on the Second Lien Notes reduce the carrying value of the debt with no interest expense recognized. For the three months ended September 30, 2016, unrecorded contractual interest on the Second Lien Notes was approximately $30 million.
Reorganization Items, Net
The Company has incurred and is expected to continue to incur significant costs associated with the reorganization. These costs, which are expensed as incurred, are expected to significantly affect the Company’s results of operations. Reorganization items represent costs and income directly associated with the Chapter 11 proceedings since the Petition Date, and also include adjustments to reflect the carrying value of certain liabilities subject to compromise at their estimated allowed claim amounts, as such adjustments are determined.
The following table summarizes the components of reorganization items included on the condensed consolidated statement of operations:
 Three Months Ended September 30, 2016
 (in thousands)
  
Legal and other professional advisory fees$(25,604)
Terminated contracts(92,957)
Other2,285
Reorganization items, net$(116,276)
Income Tax Expense (Benefit)
The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits are passed through to its unitholders. Limited

52

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

liability companies are subject to Texas margin tax. In addition, certain of the Company’s subsidiaries are Subchapter C-corporations subject to federal and state income taxes. The Company recognized an income tax benefit of approximately $4 million for the three months ended September 30, 2016, compared to income tax expense of approximately $2 million for the three months ended September 30, 2015. The income tax benefit is primarily due to lower income from the Company’s taxable subsidiaries during the three months ended September 30, 2016, compared to the same period in 2015.
Net Loss
Net loss decreased by approximately $1.4 billion or 87% to approximately $198 million for the three months ended September 30, 2016, from approximately $1.6 billion for the three months ended September 30, 2015. The decrease was primarily due to lower impairment charges, partially offset by lower gains on oil and natural gas derivatives and lower production revenues. See discussion above for explanations of variances.

53

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Results of Operations
Nine Months Ended September 30, 2016, Compared to Nine Months Ended September 30, 2015
 Nine Months Ended
September 30,
  
 2016 2015 Variance
 (in thousands)
Revenues and other:     
Natural gas sales$346,970
 $478,645
 $(131,675)
Oil sales507,159
 787,158
 (279,999)
NGL sales105,586
 108,430
 (2,844)
Total oil, natural gas and NGL sales959,715
 1,374,233
 (414,518)
Gains (losses) on oil and natural gas derivatives(72,533) 782,622
 (855,155)
Marketing and other revenues68,645
 79,824
 (11,179)
 955,827
 2,236,679
 (1,280,852)
Expenses:     
Lease operating expenses370,658
 467,759
 (97,101)
Transportation expenses156,590
 164,250
 (7,660)
Marketing expenses35,784
 47,359
 (11,575)
General and administrative expenses (1)
196,377
 237,731
 (41,354)
Exploration costs2,745
 4,032
 (1,287)
Depreciation, depletion and amortization449,677
 637,964
 (188,287)
Impairment of long-lived assets1,195,632
 2,787,697
 (1,592,065)
Taxes, other than income taxes80,297
 158,317
 (78,020)
(Gains) losses on sale of assets and other, net5,959
 (197,263) 203,222
 2,493,719
 4,307,846
 (1,814,127)
Other income and (expenses)(215,195) (224,117) 8,922
Reorganization items, net418,608
 
 418,608
Loss before income taxes(1,334,479) (2,295,284) 960,805
Income tax expense (benefit)3,140
 (7,680) 10,820
Net loss$(1,337,619) $(2,287,604) $949,985
(1)
General and administrative expenses for the nine months ended September 30, 2016, and September 30, 2015, include approximately $19 million and $41 million, respectively, of noncash unit-based compensation expenses.

54

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

 Nine Months Ended
September 30,
  
 2016 2015 Variance
Average daily production:     
Natural gas (MMcf/d)600
 654
 (8)%
Oil (MBbls/d)51.9
 63.6
 (18)%
NGL (MBbls/d)29.6
 28.5
 4 %
Total (MMcfe/d)1,089
 1,206
 (10)%
      
Weighted average prices: (1)
     
Natural gas (Mcf)$2.11
 $2.68
 (21)%
Oil (Bbl)$35.66
 $45.36
 (21)%
NGL (Bbl)$13.03
 $13.94
 (7)%
      
Average NYMEX prices:     
Natural gas (MMBtu)$2.29
 $2.80
 (18)%
Oil (Bbl)$41.33
 $51.00
 (19)%
      
Costs per Mcfe of production:     
Lease operating expenses$1.24
 $1.42
 (13)%
Transportation expenses$0.52
 $0.50
 4 %
General and administrative expenses (2)
$0.66
 $0.72
 (8)%
Depreciation, depletion and amortization$1.51
 $1.94
 (22)%
Taxes, other than income taxes$0.27
 $0.48
 (44)%
(1)
Does not include the effect of gains (losses) on derivatives.
(2)
General and administrative expenses for the nine months ended September 30, 2016, and September 30, 2015, include approximately $19 million and $41 million, respectively, of noncash unit-based compensation expenses.

55

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Revenues and Other
Oil, Natural Gas and NGL Sales
Oil, natural gas and NGL sales decreased by approximately $415 million or 30% to approximately $960 million for the nine months ended September 30, 2016, from approximately $1.4 billion for the nine months ended September 30, 2015, due to lower oil, natural gas and NGL prices and lower production volumes. Lower oil, natural gas and NGL prices resulted in a decrease in revenues of approximately $138 million, $94 million and $8 million, respectively.
Average daily production volumes decreased to approximately 1,089 MMcfe/d for the nine months ended September 30, 2016, from 1,206 MMcfe/d for the nine months ended September 30, 2015. Lower oil and natural gas production volumes resulted in a decrease in revenues of approximately $142 million and $38 million, respectively. Higher NGL production volumes resulted in an increase in revenues of approximately $5 million.
The following table sets forth average daily production by region:
 Nine Months Ended
September 30,
    
 2016 2015 Variance
Average daily production (MMcfe/d):       
Rockies394
 433
 (39) (9)%
Hugoton Basin239
 252
 (13) (5)%
California158
 187
 (29) (15)%
Mid-Continent100
 102
 (2) (2)%
TexLa80
 82
 (2) (2)%
Permian Basin58
 85
 (27) (32)%
Michigan/Illinois31
 31
 
 (2)%
South Texas29
 34
 (5) (15)%
 1,089
 1,206
 (117) (10)%
The decreases in average daily production volumes primarily reflect lower production volumes as a result of reduced development capital spending throughout the Company’s various operating regions, as well as marginal well shut-ins, driven by continued low commodity prices. The decrease in average daily production volumes in California also reflects operational challenges in the Company’s Diatomite development program, where the Company is pursuing various remedies to address wells performance and has temporarily curtailed capital spending in this program. The decrease in average daily production volumes in the Permian Basin region also reflects lower production volumes as a result of the Howard County assets sale on August 31, 2015.
Gains (Losses) on Oil and Natural Gas Derivatives
Losses on oil and natural gas derivatives were approximately $73 million for the nine months ended September 30, 2016, compared to gains of approximately $783 million for the nine months ended September 30, 2015, representing a variance of approximately $856 million. Losses on oil and natural gas derivatives were primarily due to changes in fair value of the derivative contracts, and the comparison from period to period was impacted by the declining maturity schedule of the Company’s hedges. The fair value on unsettled derivative contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized.
See above under “Executive Overview” for details about the Company’s commodity derivatives cancellations in 2016.

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The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and Note 7 and Note 8 for additional details about the Company’s commodity derivatives. For information about the Company’s credit risk related to derivative contracts, see “Counterparty Credit Risk” under “Liquidity and Capital Resources” below.
Marketing and Other Revenues
Marketing revenues represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing and other revenues decreased by approximately $40$11 million or 34%14% to approximately $69 million for the nine months ended September 30, 2016, from approximately $80 million for the nine months ended September 30, 2015, from approximately $120 million for the nine months ended September 30, 2014.2015. The decrease was primarily due to lower revenues generated by the Jayhawk natural gas processing plant in Kansas, principally driven by a change in contract terms, and lower electricity sales revenues generated by the Company’s California cogeneration facilities, and the impact of properties sold during the fourth quarter of 2014, partially offset by higher helium sales revenue in the Hugoton Basin.
Expenses
Lease Operating Expenses
Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $103$97 million or 18%21% to approximately $371 million for the nine months ended September 30, 2016, from approximately $468 million for the nine months ended September 30, 2015, from approximately $571 million for the nine months ended September 30, 2014.2015. The decrease was primarily due to cost savings initiatives and lower costsworkover activities, as a result of the properties sold during the fourth quarter of 2014,well as a decrease in steam costs caused by lower prices for natural gas used in steam generation and cost savings initiatives, partially offset by costs associated with properties acquired during the third quarter of 2014.a decrease in steam injection volumes. Lease operating expenses per Mcfe also decreased to $1.24 per Mcfe for the nine months ended September 30, 2016, from $1.42 per Mcfe for the nine months ended September 30, 2015, from $1.80 per Mcfe2015.
Transportation Expenses
Transportation expenses decreased by approximately $7 million or 5% to approximately $157 million for the nine months ended September 30, 2014.
Transportation Expenses
Transportation expenses increased by approximately $20 million or 14% to2016, from approximately $164 million for the nine months ended September 30, 2015,2015. The decrease was primarily due to reduced costs as a result of certain contracts terminated in the Chapter 11 proceedings and lower production volumes, partially offset by higher costs from approximately $144 millionnonoperated properties in the Rockies region. Transportation expenses per Mcfe increased to $0.52 per Mcfe for the nine months ended September 30, 2014. The increase was primarily due to costs associated with properties acquired during the third quarter of 2014 partially offset by lower costs as a result of the properties sold during the fourth quarter of 2014. Transportation expenses per Mcfe also increased to2016, from $0.50 per Mcfe for the nine months ended September 30, 2015, from $0.45 per Mcfe for the nine months ended September 30, 2014.2015.
Marketing Expenses
Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses decreased by approximately $29$11 million or 38%24% to approximately $36 million for the nine months ended September 30, 2016, from approximately $47 million for the nine months ended September 30, 2015, from approximately $76 million for the nine months ended September 30, 2014.2015. The decrease was primarily due to lower expenses associated with the Jayhawk natural gas processing plant in Kansas, principally driven by a change in contract terms, and lower electricity generation expenses incurred by the Company’s California cogeneration facilities.
General and Administrative Expenses
General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses increaseddecreased by approximately $16$42 million or 7%17% to approximately $196 million for the nine months ended September 30, 2016, from approximately $238 million for the nine months ended September 30, 2015, from approximately $222 million2015. The decrease was primarily due to lower salaries and benefits related expenses, lower acquisition expenses, lower professional services expenses and lower various other administrative expenses. General and administrative expenses for the nine months ended September 30, 2014. The increase2015, was primarily due to higherimpacted by advisory fees related to the alliance agreements and higher salaries and benefits related expenses, principally driven by severance costs, partially offset by lower acquisition expenses.entered into with certain private capital investors. General and administrative expenses per Mcfe also increaseddecreased to $0.66 per Mcfe for the nine months ended September 30, 2016, from $0.72 per Mcfe for the nine months ended September 30, 2015, from $0.70 per Mcfe2015.
Professional services expenses of approximately $46 million for the nine months ended September 30, 2014.2016, related to the Chapter 11 proceedings that were incurred since the Petition Date, have been recorded in “reorganization items, net” on the condensed consolidated statement of operations.

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Exploration Costs
Exploration costs decreased by approximately $6$1 million or 62%32% to approximately $3 million for the nine months ended September 30, 2016, from approximately $4 million for the nine months ended September 30, 2015, from approximately $10 million for the nine months ended September 30, 2014.2015. The decrease was primarily due to lower leasehold impairment expenses on unproved properties partially offset by higher seismic data expenses.properties.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased by approximately $195$188 million or 23%30% to approximately $450 million for the nine months ended September 30, 2016, from approximately $638 million for the nine months ended September 30, 2015, from approximately $833 million for the nine months ended September 30, 2014.2015. The decrease was primarily due to the divestitures of properties in 2014 with higher rates compared to the rates of properties acquired in 2014, as well as lower rates as a result of the impairments recorded in the prior year and the first quarter of 2015, partially offset by higher2016, as well as lower total production volumes. Depreciation, depletion and amortization per Mcfe also decreased to $1.51 per Mcfe for the nine months ended September 30, 2016, from $1.94 per Mcfe for the nine months ended September 30, 2015, from $2.63 per Mcfe for the nine months ended September 30, 2014.2015.
Impairment of Long-Lived Assets
The Company recorded the following noncash impairment charges (before and after tax) associated with proved and unproved oil and natural gas properties:
Nine Months Ended
September 30,
Nine Months Ended
September 30,
2015 20142016 2015
(in thousands)(in thousands)
      
California region$984,288
 $537,511
Mid-Continent region148,289
 372,568
Rockies region$1,182,337
 $
49,819
 1,182,337
California region537,511
 
Hugoton Basin
 277,914
TexLa region408,667
 

 408,667
Mid-Continent region372,568
 
Shallow Texas Panhandle Brown Dolomite formation277,914
 
South Texas region8,700
 

 8,700
Permian Basin region
 603,250
$2,787,697
 $603,250
Proved oil and natural gas properties1,182,396
 2,787,697
California region unproved oil and natural gas properties13,236
 
Impairment of long-lived assets$1,195,632
 $2,787,697
The impairment charges in 2016 were due to a decline in commodity prices, changes in expected capital development and a decline in the Company’s estimates of proved reserves. The impairment charges in 2015 were due to a decline in commodity prices and the Company’s estimates of proved reserves, and the impairment in 2014 was due to the divestiture of certain high valued unproved properties in the Midland Basin in which the expected cash flows were previously included in the impairment assessment for proved oil and natural gas properties.reserves.
Gains(Gains) Losses on Sale of Assets and Other, Net
During the nine months ended September 30, 2015, the Company recorded a net gain of approximately $174 million, including costs to sell of approximately $1 million, on the Howard County Assets Sale. During the nine months ended September 30, 2014, the Company recorded a net gain of approximately $45 million, including costs to sell of approximately $3 million, on the noncash exchange of a portion of its Permian Basin properties to Exxon XTO for properties in the Hugoton Basin. See Note 2 for additional details of the divestiture and exchange of properties.

Taxes, Other Than Income Taxes
47
 Nine Months Ended
September 30,
  
 2016 2015 Variance
 (in thousands)
      
Severance taxes$32,872
 $49,187
 $(16,315)
Ad valorem taxes36,140
 91,923
 (55,783)
California carbon allowances10,138
 17,247
 (7,109)
Other1,147
 (40) 1,187
 $80,297
 $158,317
 $(78,020)

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Taxes, Other Than Income Taxes
 Nine Months Ended
September 30,
  
 2015 2014 Variance
 (in thousands)
      
Severance taxes$49,187
 $105,867
 $(56,680)
Ad valorem taxes91,923
 81,635
 10,288
California carbon allowances17,247
 13,328
 3,919
Other(40) 184
 (224)
 $158,317
 $201,014
 $(42,697)
Taxes, other than income taxes decreased by approximately $43$78 million or 21%49% for the nine months ended September 30, 2015,2016, compared to the nine months ended September 30, 2014.2015. Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower oil, natural gas and NGL prices partially offset by higherand lower production volumes. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, increaseddecreased primarily due to acquisitions completed duringlower estimated valuations on certain of the third quarter of 2014.Company’s properties. California carbon allowances increaseddecreased primarily due to an increaselower anticipated emissions compliance obligations as a result of reduced capital spending levels and a decrease in estimated emissions for which credits are needed and higher costs for acquired allowances.steam injection volumes.
Other Income and (Expenses)
Nine Months Ended
September 30,
  Nine Months Ended
September 30,
  
2015 2014 Variance2016 2015 Variance
(in thousands)(in thousands)
          
Interest expense, net of amounts capitalized$(427,584) $(422,160) $(5,424)$(213,758) $(427,584) $213,826
Gain on extinguishment of debt213,527
 
 213,527

 213,527
 (213,527)
Other, net(10,060) (6,699) (3,361)(1,437) (10,060) 8,623
$(224,117) $(428,859) $204,742
$(215,195) $(224,117) $8,922
Other income and (expenses) decreased by approximately $205$9 million for the nine months ended September 30, 2015,2016, compared to the nine months ended September 30, 2014.2015. Interest expense increaseddecreased primarily due to higherthe Company’s discontinuation of interest expense recognition on the senior notes for the period from May 12, 2016 through September 30, 2016, as a result of the Chapter 11 proceedings, lower outstanding debt during the period principally as a result of the senior notes repurchased and a decrease in capitalized interest, partially offset byexchanged during 2015, and lower amortization of discounts and financing fees and expenses primarily related tofees. For the bridge loan and term loan that were repaid during 2014. In addition, forperiod from May 12, 2016, through September 30, 2016, contractual interest, which was not recorded, on the senior notes was approximately $108 million. For the nine months ended September 30, 2015, the Company recorded a gain on extinguishment of debt of approximately $214 million as a result of the repurchases of a portion of its senior notes. Other expenses decreased primarily due to lower write-offs of deferred financing fees related to the Credit Facilities and lower bank fees. See “Debt” under “Liquidity and Capital Resources” below for additional details. Other expenses increased during
The $1.0 billion in aggregate principal amount of Second Lien Notes issued in November 2015 primarily duewere accounted for as a troubled debt restructuring, which requires that interest payments on the Second Lien Notes reduce the carrying value of the debt with no interest expense recognized. For the period from May 12, 2016, through September 30, 2016, unrecorded contractual interest on the Second Lien Notes was approximately $46 million.
Reorganization Items, Net
The Company has incurred and is expected to write-offscontinue to incur significant costs associated with the reorganization. These costs, which are expensed as incurred, are expected to significantly affect the Company’s results of deferred financing fees relatedoperations. Reorganization items represent costs and income directly associated with the Chapter 11 proceedings since the Petition Date, and also include adjustments to reflect the Credit Facilities.carrying value of certain liabilities subject to compromise at their estimated allowed claim amounts, as such adjustments are determined.

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The following table summarizes the components of reorganization items included on the condensed consolidated statement of operations:
 Nine Months Ended September 30, 2016
 (in thousands)
  
Legal and other professional advisory fees$(46,114)
Unamortized deferred financing fees, discounts and premiums(41,122)
Gain related to interest payable on the 12.00% senior secured second lien notes due December 2020 (1)
551,000
Terminated contracts(47,848)
Other2,692
Reorganization items, net$418,608
(1)
Represents a noncash gain on the write-off of postpetition contractual interest through maturity, recorded to reflect the carrying value of the liability subject to compromise at its estimated allowed claim amount.
Income Tax Expense (Benefit)
The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Company’s subsidiaries are Subchapter C-corporations subject to federal and state income taxes. The Company recognized income tax expense of approximately $3 million for the nine months ended September 30, 2016, compared to an income tax benefit of approximately $8 million for the nine months ended September 30, 2015, compared to2015. The increased income tax expense ofis primarily due to additional expense recognized related to unit-based compensation in 2016 for which there was no windfall benefit offset as in 2015.
Net Loss
Net loss decreased by approximately $3$950 million or 42% to approximately $1.3 billion for the nine months ended September 30, 2014. The income tax benefit was primarily due to lower income2016, from the Company’s taxable subsidiaries during the nine months ended September 30, 2015, compared to the same period in 2014.
Net Income (Loss)
Net loss increased by approximately $2.0 billion or 669% to approximately $2.3 billion for the nine months ended September 30, 2015, from approximately $297 million2015. The decrease was primarily due to lower impairment charges, the gain related to the Second Lien Notes and lower expenses, including interest, partially offset by losses compared to gains on oil and natural gas derivatives for the nine monthscomparative period as well as lower production revenues. See discussion above for explanations of variances.
Liquidity and Capital Resources
The significant risks and uncertainties related to the Company’s liquidity and Chapter 11 proceedings described under “Executive Overview” raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facilities, its Second Lien Notes and its senior notes. Additionally, other events of default, including cross-defaults, are present, including the failure to make interest payments on the Company’s Second Lien Notes and senior notes, as well as the receipt of a going concern explanatory paragraph from the Company’s independent registered public accounting firm on the Company’s consolidated financial statements for the year ended September 30, 2014. The increase wasDecember 31, 2015. Under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of an event of default. See above under “Executive Overview – Chapter 11 Proceedings” for a description of these and other developments.
In order to decrease the Company’s level of indebtedness and maintain the Company’s liquidity at levels sufficient to meet its commitments, the Company undertook a number of actions, including minimizing capital expenditures and further reducing its recurring operating expenses. Despite taking these actions, the Company did not have sufficient liquidity to satisfy its debt

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primarily dueservice obligations, meet other financial obligations and comply with its debt covenants. As a result, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code.
Although the Company believes its cash flow from operations and cash on hand will be adequate to higher impairment chargesmeet the operating costs of its existing business, there are no assurances that the Company’s cash flow from operations and lower production revenues, partially offsetcash on hand will be sufficient to continue to fund its operations or to allow the Company to continue as a going concern until a Plan is confirmed by higher gainsthe Bankruptcy Court or other alternative restructuring transaction is approved by the Bankruptcy Court and consummated. The Company’s long-term liquidity requirements, the adequacy of its capital resources and its ability to continue as a going concern are difficult to predict at this time and ultimately cannot be determined until a Plan has been confirmed, if at all, by the Bankruptcy Court. See Item 1A. “Risk Factors” in this Quarterly Report on oilForm 10‑Q and natural gas derivativesin the Annual Report on Form 10‑K for the year ended December 31, 2015, for risks relating to liquidity and lower expenses. See discussions above for explanations of variances.
Liquidity and Capital ResourcesChapter 11 proceedings.
The Company utilizeshas utilized funds from debt and equity offerings, borrowings under its Credit Facilities and net cash provided by operating activities for capital resources and liquidity. To date, the primary use of capital has been for acquisitions and the development of oil and natural gas properties. For the nine months ended September 30, 2015,2016, the Company’s total capital expenditures excluding acquisitions, were approximately $424$115 million.
See below for details regarding capital expenditures for the periods presented:
Three Months Ended
September 30,
 Nine Months Ended
September 30,
Three Months Ended
September 30,
 Nine Months Ended
September 30,
2015 2014 2015 20142016 2015 2016 2015
(in thousands)(in thousands)
              
Oil and natural gas$91,439
 $351,493
 $373,842
 $1,138,006
$28,211
 $91,439
 $73,777
 $373,842
Plant and pipeline8,887
 3,882
 13,889
 15,545
19,519
 8,887
 34,547
 13,889
Other12,526
 13,451
 36,701
 31,228
784
 12,526
 6,471
 36,701
Capital expenditures, excluding acquisitions$112,852
 $368,826
 $424,432
 $1,184,779
Capital expenditures$48,514
 $112,852
 $114,795
 $424,432
For 2015,2016, the Company estimates its total capital expenditures, excluding acquisitions, will be approximately $550$235 million, including approximately $470$160 million related to its oil and natural gas capital program and approximately $25$60 million related to its plant and pipeline capital. This estimate reflects amounts for the development of properties associated with previous acquisitions (see Note 2), is under continuous review and subject to ongoing adjustments. The Company expects to fund theits capital expenditures primarily withfrom net cash provided by operating activities. Atactivities; however, there is uncertainty regarding the Company’s liquidity as discussed above.
Statements of Cash Flows
The following is a comparative cash flow summary:
 Nine Months Ended
September 30,
  
 2016 2015 Variance
 (in thousands)
Net cash:     
Provided by operating activities$885,192
 $1,034,769
 $(149,577)
Used in investing activities(129,063) (190,540) 61,477
Provided by (used in) financing activities42,210
 (501,232) 543,442
Net increase in cash and cash equivalents$798,339
 $342,997
 $455,342
Operating Activities
Cash provided by operating activities for the nine months ended September 30, 2015, there2016, was approximately $1.2$885 million, compared to approximately $1.0 billion of available borrowing capacity underfor the LINN Credit Facility but less than $1 million available under the Berry Credit Facility, each as defined in Note 6.
In October 2015, LINN Energy and Berry each entered into an amendmentnine months ended September 30, 2015. The decrease was primarily due to its credit facility.  See Note 6 for additional details.
The spring 2015 semi-annual borrowing base redetermination of the Company’s Credit Facilities was completed in May 2015, and, as a result oflower production related revenues principally due to lower commodity prices the borrowing base under the LINN Credit Facility decreased from $4.5 billion to $4.05 billion and the borrowing base under the Berry Credit Facility decreased from $1.4 billion to $1.2 billion. The fall 2015 semi-annual redetermination was completed in October 2015 and the borrowing base under the LINN Credit Facility was reaffirmed at $4.05 billion; however, the borrowing base will automatically decrease to $3.6 billion on January 1, 2016, subject to any additional reductions for additional junior lien debt issued since this redetermination, if the following conditions are not met on or before December 31, 2015: (i) the issuancelower production volumes, partially offset by the Company of at least $250 million of additional junior lien debt; (ii) repayment and extinguishment of the Berry Credit Facility; and (iii) the guarantee by Berry of the LINN Credit Facility or the merger or consolidation of Berry with a guarantor under the LINN Credit Facility. Notwithstanding this, borrowing availability under the LINN Credit Facility will be limited to $3.6 billion (which amount includes the outstanding $500 million term loan) until the earlier of a) January 1, 2016 or b) the date of the actions described in the prior sentence. The borrowing base under the Berry Credit Facility decreased from $1.2 billion to $900 million.lower expenses.
Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs, along with the maturity schedule of the Company’s hedges, may impact future redeterminations.
In connection with the reduction in Berry’s borrowing base in October 2015, Berry repaid $300 million of borrowings outstanding under the Berry Credit Facility. In connection with the reduction in Berry’s borrowing base in May 2015, LINN Energy borrowed $250 million under the LINN Credit Facility, which it contributed to Berry to post as restricted cash with Berry’s lenders. As directed by LINN Energy, the $250 million was deposited on Berry’s behalf in a security account with the administrative agent subject to a security control agreement. Berry’s ability to withdraw funds from this account is subject to a

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concurrent reduction of the borrowing base under the Berry Credit Facility or lender’s consent in connection with a redetermination of such borrowing base. The $250 million may be used to satisfy obligations under the Berry Credit Facility or, subject to restrictions in the indentures governing Berry’s senior notes, may be returned to LINN Energy in the future.
As the Company pursues growth, it continually monitors the capital resources available to meet future financial obligations and planned capital expenditures. The Company’s future success in growing reserves and production volumes will be highly dependent on the capital resources available and its success in drilling for or acquiring additional reserves. The Company actively reviews acquisition opportunities on an ongoing basis. If the Company were to make significant additional acquisitions for cash, it would need to borrow additional amounts under its Credit Facilities, if available, or obtain additional debt or equity financing. The Company’s Credit Facilities and indentures governing its senior notes impose certain restrictions on the Company’s ability to obtain additional debt financing. Based upon current expectations, the Company believes its liquidity and capital resources will be sufficient to conduct its business and operations.
Statements of Cash Flows
The following is a comparative cash flow summary:
 Nine Months Ended
September 30,
  
 2015 2014 Variance
 (in thousands)
Net cash:     
Provided by operating activities$1,034,769
 $1,435,810
 $(401,041)
Used in investing activities(190,540) (3,836,033) 3,645,493
Provided by (used in) financing activities(501,232) 2,407,213
 (2,908,445)
Net increase in cash and cash equivalents$342,997
 $6,990
 $336,007
Operating Activities
Cash provided by operating activities for the nine months ended September 30, 2015, was approximately $1.0 billion, compared to approximately $1.4 billion for the nine months ended September 30, 2014. The decrease was primarily due to lower production related revenues principally due to lower commodity prices partially offset by higher cash settlements on derivatives.
Investing Activities
The following provides a comparative summary of cash flow from investing activities:
Nine Months Ended
September 30,
Nine Months Ended
September 30,
2015 20142016 2015
(in thousands)(in thousands)
Cash flow from investing activities:      
Acquisition of oil and natural gas properties and joint-venture funding$
 $(2,601,932)
Capital expenditures(554,735) (1,226,616)$(179,332) $(554,735)
Decrease in restricted cash53,418
 
Proceeds from sale of properties and equipment and other364,195
 (7,485)(3,149) 364,195
$(190,540) $(3,836,033)$(129,063) $(190,540)
The primary use of cash in investing activities is for capital spending, including acquisitions and the development of the Company’s oil and natural gas properties. Capital expenditures decreased primarily due to lower spending on development activities throughout the Company’s various operating regions as a result of continued low commodity prices. The Company made no acquisitions of properties during the Company’snine months ended September 30, 2016, or September 30, 2015. In addition, during the second quarter of 2016, restricted cash was reduced 2015 capital budget.by approximately $53 million as a result of the amendment to the Berry Credit Facility and the Bank RSA. See Note 2 for additional details. Proceeds from sale of properties and equipment and other for the nine months ended September 30, 2015, include approximately $276 million in net cash proceeds received from the Howard County Assets Sale in August 20152015.
Financing Activities
Cash provided by financing activities for the nine months ended September 30, 2016, was approximately $42 million, compared to cash used in financing activities of approximately $501 million for the nine months ended September 30, 2015. During the nine months ended September 30, 2016, the Company borrowed approximately $979 million under the LINN Credit Facility, including approximately $919 million in February 2016 which represented the remaining undrawn amount that was available. In addition, during the nine months ended September 30, 2016, the Company repaid approximately $913 million under the LINN Credit Facility and term loan, and approximately $2 million under the Berry Credit Facility, primarily using the net cash proceeds from canceled derivative contracts (see Note 2)7).

The following provides a comparative summary of proceeds from borrowings and repayments of debt:
50
 Nine Months Ended
September 30,
 2016 2015
 (in thousands)
Proceeds from borrowings:   
LINN Credit Facility$978,500
 $1,405,000
 $978,500
 $1,405,000
Repayments of debt:   
LINN Credit Facility$(814,299) $(1,145,000)
Berry Credit Facility(1,701) 
Term loan(98,911) 
Senior notes
 (556,909)
 $(914,911) $(1,701,909)
See Note 13 for details about borrowings and repayments of debt that were reflected as noncash transactions by the Company.

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Financing Activities
Cash used in financing activities for the nine months ended September 30, 2015, was approximately $501 million, compared to cash provided by financing activities of approximately $2.4 billion for the nine months ended September 30, 2014. The decrease in financing cash flow needs was primarily attributable to decreased capital expenditures and acquisition activity during the nine months ended September 30, 2015, as compared to the nine months ended September 30, 2014. The following provides a comparative summary of proceeds from borrowings and repayments of debt:
 Nine Months Ended
September 30,
 2015 2014
 (in thousands)
Proceeds from borrowings:   
LINN Credit Facility$1,405,000
 $1,900,000
Senior notes
 1,100,024
Bridge loan and term loan
 2,300,000
 $1,405,000
 $5,300,024
Repayments of debt:   
LINN Credit Facility$(1,145,000) $(950,000)
Senior notes(556,909) (206,124)
Bridge loan
 (1,000,000)
 $(1,701,909) $(2,156,124)
In addition, in May 2015, LINN Energy borrowed $250 million under the LINN Credit Facility, which it contributed to Berry to post as restricted cash with Berry’s lenders (see Note 6).
Debt
The following summarizes the Company’s outstanding debt:
 
September 30,
2015
 December 31, 2014
 (in thousands, except percentages)
    
LINN credit facility$2,305,000
 $1,795,000
Berry credit facility1,173,175
 1,173,175
Term loan500,000
 500,000
6.50% senior notes due May 20191,159,215
 1,200,000
6.25% senior notes due November 20191,483,928
 1,800,000
8.625% senior notes due April 20201,123,483
 1,300,000
6.75% Berry senior notes due November 2020261,100
 299,970
7.75% senior notes due February 2021963,774
 1,000,000
6.50% senior notes due September 2021502,010
 650,000
6.375% Berry senior notes due September 2022572,700
 599,163
Net unamortized discounts and premiums(16,109) (21,499)
Total debt, net$10,028,276
 $10,295,809
During the nine months ended September 30, 2015, the Company repurchased, through privately negotiated transactions and on the open market, approximately $783 million of its outstanding senior notes as follows:
6.50% senior notes due May 2019 – $41 million;
6.25% senior notes due November 2019 – $316 million;
8.625% senior notes due April 2020 – $177 million;

51

Table of Contents
 September 30, 2016 December 31, 2015
 (in thousands, except percentages)
    
LINN credit facility$1,654,745
 $2,215,000
Berry credit facility891,259
 873,175
Term loan284,241
 500,000
6.50% senior notes due May 2019562,234
 562,234
6.25% senior notes due November 2019581,402
 581,402
8.625% senior notes due April 2020718,596
 718,596
6.75% Berry senior notes due November 2020261,100
 261,100
12.00% senior secured second lien notes due December 2020 (1)
1,000,000
 1,000,000
Interest payable on senior secured second lien notes due December 2020 (1)

 608,333
7.75% senior notes due February 2021779,474
 779,474
6.50% senior notes due September 2021381,423
 381,423
6.375% Berry senior notes due September 2022572,700
 572,700
Net unamortized discounts and premiums (2)

 (8,694)
Net unamortized deferred financing fees (2)
(1,397) (37,374)
Total debt, net7,685,777
 9,007,369
Less current portion, net (3)
(2,828,848) (3,714,693)
Less liabilities subject to compromise (4)
(4,856,929) 
Long-term debt, net$
 $5,292,676
Item 2.
(1)
Management’s Discussion and AnalysisThe issuance of Financial Condition and Resultsthe Second Lien Notes was accounted for as a troubled debt restructuring, which requires that interest payments on the Second Lien Notes reduce the carrying value of Operations - Continuedthe debt with no interest expense recognized. During the nine months ended September 30, 2016, $551 million was written off to reorganization items in connection with the filing of the Bankruptcy Petitions. The remaining amount of approximately $57 million was classified as liabilities subject to compromise at September 30, 2016.

(2)
Approximately $41 million in net discounts, premiums and deferred financing fees were written off to reorganization items in connection with the filing of the Bankruptcy Petitions.
(3)
Due to existing and anticipated covenant violations, the Company’s Credit Facilities and term loan were classified as current at September 30, 2016, and December 31, 2015. The current portion as of December 31, 2015, also includes approximately $128 million of interest payable on the Second Lien Notes due within one year.
(4)
The Company’s senior notes and Second Lien Notes were classified as liabilities subject to compromise at September 30, 2016.
6.75% Berry senior notes due November 2020 – $39 million;
7.75% senior notes due February 2021 – $36 million;
6.50% senior notes due September 2021 – $148 million; and
6.375% Berry senior notes due September 2022 – $26 million.
AtAs of September 30, 2015,2016, there was approximately $1.2 billion ofno remaining available borrowing capacity under the LINN Credit Facility but less than $1 million available under the Berry Credit Facility.Facilities. For additional information related to the Company’s outstanding debt, see Note 6. The Company plans to file Berry’s stand-alone financial statements with the Securities and Exchange Commission at a later date.
Financial Covenants
The Credit Facilities, as amended in October 2015, contain requirements and financial covenants, among others, to maintain: 1) a ratio of EBITDA to Interest Expense (as each term is defined in the LINN Credit Facility) and Adjusted EBITDAX to Interest Expense (as each term is defined in the Berry Credit Facility) (“Interest Coverage Ratio”) for the preceding four quarters of greater than 2.5 to 1.0 currently, 2.0 to 1.0 from December 31, 2015 through December 31, 2016, 2.25 to 1.0 from March 31, 2017 through June 30, 2017 and returning to 2.5 to 1.0 thereafter, and 2) a ratio of adjusted current assets to adjusted current liabilities (as described in the LINN Credit Facility) and Current Assets to Current Liabilities (as each term is defined in the Berry Credit Facility) (“Current Ratio”) as of the last day of any fiscal quarter of greater than 1.0 to 1.0. The Interest Coverage Ratio is intended as a measure of the Company’s ability to make interest payments on its outstanding indebtedness and the Current Ratio is intended as a measure of the Company’s solvency. The Company is required to demonstrate compliance with each of these ratios on a quarterly basis. The following represents the calculations of the Interest Coverage Ratio and the Current Ratio as presented to the lenders under the Credit Facilities:
 At or for the Quarter Ended  
 December 31, 2014 March 31, 2015 
June 30,
2015
 September 30,
2015
 Twelve Months Ended September 30, 2015
LINN Credit Facility:         
Interest Coverage Ratio2.7
 2.9
 3.0
 3.4
 3.0
Current Ratio2.6
 3.0
 2.9
 2.8
 2.8
Berry Credit Facility:         
Interest Coverage Ratio6.5
 1.7
 2.6
 2.2
 3.3
Current Ratio (1)
0.6
 0.6
 0.5
 2.0
 2.0
Current Ratio (consolidated) (1)
2.9
 3.2
 2.9
 2.6
 2.6
(1)
The Berry Credit Facility allows Berry to demonstrate its compliance with the Current Ratio financial covenant on a consolidated basis with LINN Energy for up to three quarters of each calendar year.
The Company has included disclosure of the Interest Coverage Ratio for the twelve months ended September 30, 2015, and the Current Ratio as of September 30, 2015, to demonstrate its compliance for the quarter ended September 30, 2015, as well as the Interest Coverage Ratio for each of the preceding four quarters on an individual basis (rather than on a last twelve months basis) and the Current Ratio as of the end of each of the preceding four quarters to provide investors with trend information about the Company’s ongoing compliance with these financial covenants. If the Company fails to demonstrate compliance with either or both of the Interest Coverage Ratio or the Current Ratio as of the end of the quarter and such failure continues beyond applicable cure periods, an event of default would occur and the Company would be unable to make additional borrowings and outstanding indebtedness may be accelerated. The Company depends, in part, on its Credit Facilities for future capital needs. In addition, the Company has drawn on the LINN Credit Facility to fund or partially fund cash distribution payments. Absent such borrowings, the Company would have at times experienced a shortfall in cash available to pay the declared cash distribution amount. For additional information, see “Distribution Practices” below.
The Company is in compliance with all financial and other covenants of its Credit Facilities and senior notes.

52

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Counterparty Credit Risk
The Company accounts for its commodity derivatives at fair value. The Company’s counterparties are current participants or affiliates of participants in its Credit Facilities or were participants or affiliates of participants in itsFacilities. The Credit Facilities at the time it originally entered into the derivatives. The LINN Credit Facility isare secured by LINN Energy’s oil, natural gas and NGL reserves and the Berry Credit Facility is secured by Berry’sCompany’s oil, natural gas and NGL reserves; therefore, the Company is not required to post any collateral. The Company does not receive collateral from its counterparties. While the Company is in bankruptcy, the Bankruptcy Court’s hedging order governs the provision of collateral securing any commodity derivatives. The Company minimizes the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard, or have a guarantee from an affiliate that meets the Company’s minimum credit quality

63

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.
At-the-Market Offering Program
The Company’s Board of Directors has authorized the sale of up to $500 million of units under an at-the-market offering program. Sales of units, if any, will be made under an equity distribution agreement by means of ordinary brokers’ transactions, through the facilities of the NASDAQ Global Select Market, any other national securities exchange or facility thereof, a trading facility of a national securities association or an alternate trading system, to or through a market maker or directly on or through an electronic communication network, a “dark pool” or any similar market venue, at market prices, in block transactions, or as otherwise agreed with a sales agent. The Company expects to use the net proceeds from any sale of units for general corporate purposes, which may include, among other things, capital expenditures, acquisitions and the repayment of debt.
During the nine months ended September 30, 2015, the Company, under its equity distribution agreement, sold 3,621,983 units representing limited liability company interests at an average unit price of $12.37 for net proceeds of approximately $44 million (net of approximately $448,000 in commissions). In connection with the issuance and sale of these units, the Company also incurred professional services expenses of approximately $459,000. The Company used the net proceeds for general corporate purposes, including the open market repurchases of a portion of its senior notes (see Note 6). At September 30, 2015, units totaling approximately $455 million in aggregate offering price remained available to be sold under the agreement.
Public Offering of Units
In May 2015, the Company sold 16,000,000 units representing limited liability company interests in an underwritten public offering at $11.79 per unit ($11.32 per unit, net of underwriting discount) for net proceeds of approximately $181 million (after underwriting discount and offering costs of approximately $8 million). The Company used the net proceeds from the sale of these units to repay a portion of the outstanding indebtedness under the LINN Credit Facility, which included debt initially incurred to fund the open market repurchases of a portion of its senior notes during 2015 (see Note 6).

53

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Distributions
Under the Company’s limited liability company agreement, unitholders are entitled to receive a distribution of available cash, which includes cash on hand plus borrowings less any reserves established by the Company’s Board of Directors to provide for the proper conduct of the Company’s business (including reserves for future capital expenditures, including drilling, acquisitions and anticipated future credit needs) or to fund distributions, if any, over the next four quarters. The following provides a summary of distributions paid by the Company during the nine months ended September 30, 2015:
Date Paid 
Distributions
Per Unit
 
Total
Distributions
    (in millions)
     
September 2015 $0.1042
 $37
August 2015 $0.1042
 $37
July 2015 $0.1042
 $37
June 2015 $0.1042
 $37
May 2015 $0.1042
 $35
April 2015 $0.1042
 $35
March 2015 $0.1042
 $35
February 2015 $0.1042
 $35
January 2015 $0.1042
 $35
In October 2015, the Company’s Board of Directors determined to suspend payment of the Company’s distribution. For additional information, see “Distribution Practices” below.
Off-Balance Sheet Arrangements
The Company does not currently have any off-balance sheet arrangements.
Contingencies
See Part II. Item 1. “Legal Proceedings” for information regarding legal proceedings that the Company is party to and any contingencies related to these legal proceedings.
Commitments and Contractual Obligations
The Company has contractual obligations for long-term debt, operating leases and other long-term liabilities that were summarized in the table of contractual obligations in the 20142015 Annual Report on Form 10-K. WithDuring the exceptionnine months ended September 30, 2016, the Company made approximately $758 million in net repayments of a portion of the repurchasesborrowings outstanding under the Credit Facilities. The Company’s filing of approximately $783 millionthe Bankruptcy Petitions constituted an event of its outstanding senior notes, there have been no significant changes todefault that accelerated the Company’s contractual obligations since December 31, 2014.under the Credit Facilities, the Second Lien Notes and the senior notes. See Note 6 for additional information about the Company’s debt instruments.
Distribution Practices
The Company’s Board of Directors determines the appropriate level of distributions on a periodic basis in accordance with the provisions of the Company’s limited liability company agreement. Management considers the timing and size of planned capital expenditures and long-term views about expected results in determining the amount of its distributions. Capital spending and resulting production and net cash provided by operating activities do not typically occur evenly throughout the year due to a variety of factors which are difficult to predict, including rig availability, weather, well performance, the timing of completions and the commodity price environment. Consistent with practices common to publicly traded partnerships, the Company’s Board of Directors historically has not varied the distribution it declares from period to period based on uneven net cash provided by operating activities.

54

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

The Company’s Board of Directors reviews historical financial results and forecasts for future periods, including oil and natural gas development activities and the impact of significant acquisitions or dispositions, as well as considers the level of the Company’s indebtedness and its liquidity position in making a determination to increase, decrease or maintain the current level of distribution. If shortfalls are sustained over time and forecasts demonstrate expectations for continued future shortfalls, or the Company’s Board of Directors determines that it is necessary to reserve cash for the future conduct of business, it may determine to reduce, suspend or discontinue paying distributions. For example, in October 2015, following the recommendation from management, the Company’s Board of Directors determined to suspend payment of the Company’s distribution and reserve any excess cash that would otherwise be available for distribution. The Board of Directors will continue to evaluate the Company’s ability to reinstate the distribution using the considerations discussed above.
For 2015, the Company’s Board of Directors approved an oil and natural gas capital budget of approximately $470 million. At this level of capital investment, the Company forecasts a modest decline in production during 2015 while it focuses only on projects that generate an acceptable rate of return in the current low commodity price environment, and plans to balance cash flow and spending. As a result, for 2015, the Company intends to fund interest expense, its total oil and natural gas development costs and distributions to unitholders paid through September 2015 from net cash provided by operating activities, and will present “excess (shortfall) of net cash provided by operating activities after distributions to unitholders and discretionary adjustments considered by the Board of Directors” after deducting total oil and natural gas development costs. Previously, the Company intended to fund interest expense, a portion of its oil and natural gas development costs and distributions to unitholders from net cash provided by operating activities and presented “excess (shortfall) of net cash provided by operating activities after distributions to unitholders and discretionary adjustments considered by the Board of Directors” after deducting only a portion of oil and natural gas development costs.
The Company funds acquisitions and premiums paid for derivatives, if any, primarily with proceeds from debt or equity offerings, borrowings under the LINN Credit Facility or other external sources of funding. Although it is the Company’s practice to acquire or modify derivative instruments with external sources of funding, any cash settlements on derivatives are reported as net cash provided by operating activities and may be used to fund distributions.

55

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

See below for details regarding the discretionary adjustments considered by the Company’s Board of Directors in assessing the appropriate distribution amount for each period, as well as the extent to which sources of funding have been sufficient for the periods presented:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 2015 2014 2015 2014
 (in thousands)
        
Net cash provided by operating activities$361,287
 $520,175
 $1,034,769
 $1,435,810
Distributions to unitholders(111,247) (240,652) (323,878) (721,235)
Excess of net cash provided by operating activities after distributions to unitholders250,040
 279,523
 710,891
 714,575
Discretionary adjustments considered by the Board of Directors:       
Discretionary reductions for a portion of oil and natural gas development costs (1)
NM*
 (213,252) NM*
 (606,120)
Development of oil and natural gas properties (2)
(91,439) NM*
 (373,842) NM*
Cash recoveries of bankruptcy claim (3)

 
 (2,877) (2,913)
Cash received (paid) for acquisitions or divestitures – revenues less operating expenses (4)

 79,555
 (2,712) 79,555
Provision for legal matters (5)

 
 (1,000) 1,598
Changes in operating assets and liabilities and other, net (6)
(47,265) (57,443) (184,937) (69,249)
Excess of net cash provided by operating activities after distributions to unitholders and discretionary adjustments considered by the Board of Directors, including a portion of oil and natural gas development costs (7)
NM*
 $88,383
 NM*
 $117,446
Excess 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 (7)
$111,336
 NM*
 $145,523
 NM*
*
Not meaningful due to the 2015 change in presentation.
(1)
Represent discretionary reductions for a portion of oil and natural gas development costs, an estimated component of total development costs. The Board of Directors establishes the discretionary reductions with the objective of replacing proved developed producing reserves, current production and cash flow, taking into consideration the Company’s overall commodity mix. Management evaluates all of these objectives as part of the decision-making process to determine the discretionary reductions for a portion of oil and natural gas development costs for the year, although every objective may not be met in each year. Furthermore, there may be certain years in which commodity prices and other economic conditions do not merit capital spending at a level sufficient to accomplish any of these objectives. The 2014 amounts were established by the Board of Directors at the end of the previous year, allocated across four quarters, and were intended to fully offset declines in production and proved developed producing reserves during the year as compared to the prior year.
The portion of oil and natural gas development costs includes estimated drilling and development costs associated with projects to convert a portion of non-producing reserves to producing status. However, the amounts do not include the historical cost of acquired properties as those amounts have already been spent in prior periods, were financed primarily with external sources of funding and do not affect the Company’s ability to pay distributions in the current period. The Company’s existing reserves, inventory of drilling locations and production levels will decline over time as a result of development and production activities. Consequently, if the Company were to limit its total capital expenditures to this portion of oil and natural gas development costs and not acquire new reserves, total reserves would decrease over time, resulting in an inability to maintain production at current levels, which could adversely affect the Company’s ability to pay a distribution, if and when resumed. However, the Company’s current total reserves do not include reserve additions that may result from converting existing probable and possible resources to additional proved reserves, potential additional discoveries or technological advancements on the Company’s existing acreage position.

56

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

(2)
Represents total capital expenditures for the development of oil and natural gas properties as presented on an accrual basis. For 2015, the Company intends to fund its total oil and natural gas capital program, in addition to interest expense and distributions to unitholders, from net cash provided by operating activities; however, in October 2015, the Company’s Board of Directors approved the suspension of the Company’s distribution. Previously, the Company intended to fund only a portion of its oil and natural gas capital program, in addition to interest expense and distributions to unitholders, from net cash provided by operating activities.
(3)
Represent the recoveries of a bankruptcy claim against Lehman Brothers which was not a transaction occurring in the ordinary course of the Company’s business.
(4)
Represents adjustments to the purchase price of acquisitions and divestitures, based on the Company’s contractual right to revenues less operating expenses for periods from the effective date of a transaction to the closing date of a transaction. When the Company is the buyer, it is legally entitled to revenues less operating expenses generated during this period, and the Company’s Board of Directors has historically made a discretionary adjustment to include this cash in the amount available for distribution. Conversely, when the Company is the seller, the Company’s Board of Directors has historically made a discretionary adjustment to reduce this cash from the amount available for distribution during the period. Beginning with the quarter ended June 30, 2015, the Board decided to no longer make this discretionary adjustment.
(5)
Represents reserves and settlements related to legal matters.
(6)
Represents primarily working capital adjustments. These adjustments may or may not impact cash provided by (used in) operating activities during the respective period, but are included as discretionary adjustments considered by the Company’s Board of Directors as the Board historically has not varied the distribution it declares period to period based on uneven cash flows. The Company’s Board of Directors, when determining the appropriate level of cash distributions, excluded the impact of the timing of cash receipts and payments; as such, this adjustment is necessary to show the historical amounts considered by the Company’s Board of Directors in assessing the appropriate distribution amount for each period.
(7)
Represents the excess (shortfall) of net operating cash flow after distributions to unitholders and discretionary adjustments. Any excess was retained by the Company for future operations, future capital expenditures, future debt service or other future obligations. Any shortfall was funded with cash on hand and/or borrowings under the LINN Credit Facility. In a period where no distribution is paid, the Company will retain all excess of net operating cash flow for future operations, future capital expenditures, future debt service or other future obligations.
Any cash generated by Berry is currently being used by Berry to fund its activities. To the extent that Berry generates cash in excess of its needs and determines to distribute such amounts to LINN Energy, the indentures governing Berry’s senior notes limit the amount it may distribute to LINN Energy to the amount available under a “restricted payments basket,” and Berry may not distribute any such amounts unless it is permitted by the indentures to incur additional debt pursuant to the consolidated coverage ratio test set forth in the Berry indentures. Berry’s restricted payments basket was approximately $563 million at September 30, 2015, and may be increased in accordance with the terms of the Berry indentures by, among other things, 50% of Berry’s future net income, reductions in its indebtedness and restricted investments, and future capital contributions.
A summary of the significant sources and uses of funding for the respective periods is presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 2015 2014 2015 2014
 (in thousands)
        
Net cash provided by operating activities$361,287
 $520,175
 $1,034,769
 $1,435,810
Distributions to unitholders(111,247) (240,652) (323,878) (721,235)
Excess of net cash provided by operating activities after distributions to unitholders250,040
 279,523
 710,891
 714,575
Plus (less):       
Net cash provided by (used in) financing activities (excluding distributions to unitholders)(105,557) 2,702,683
 (177,354) 3,128,448
Acquisition of oil and natural gas properties and joint-venture funding
 (2,576,041) 
 (2,601,932)
Development of oil and natural gas properties(86,859) (370,861) (503,206) (1,176,478)
Purchases of other property and equipment(22,242) (18,727) (51,529) (50,138)
Proceeds from sale of properties and equipment and other305,481
 4,245
 364,195
 (7,485)
Net increase in cash and cash equivalents$340,863
 $20,822
 $342,997
 $6,990

57

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations is based on the condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that are believed to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. Actual results may differ from these estimates and assumptions used in the preparation of the financial statements.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, see Note 1 of Notes to Condensed Consolidated Financial Statements.1.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. These statements may include discussions about the Company’s:
business strategy;
acquisition strategy;
financial strategy;

64

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

risks associated with the Chapter 11 process, including the Company’s inability to develop, confirm and consummate a plan under Chapter 11 or an alternative restructuring transaction;
inability to maintain relationships with suppliers, customers, employees and other third parties as a result of the Chapter 11 filing;
failure to satisfy the Company’s short- or long-term liquidity needs, including its inability to generate sufficient cash flow from operations or to obtain adequate financing to fund its capital expenditures and meet working capital needs and its ability to continue as a going concern;
large or multiple customer defaults on contractual obligations, including defaults resulting from actual or potential insolvencies;
effects of legal proceedings;
ability to resume payment of distributions in the future or maintain or grow them after such resumption;
drilling locations;
oil, natural gas and NGL reserves;
realized oil, natural gas and NGL prices;
production volumes;
capital expenditures;
economic and competitive advantages;
credit and capital market conditions;
regulatory changes;
lease operating expenses, general and administrative expenses and development costs;
future operating results, including results of acquired properties; and
plans, objectives, expectations and intentions; and
integration of acquired businesses and operations and commencement of activities in the Company’s strategic alliances with GSO and Quantum, which may take longer than anticipated, may be more costly than anticipated as a result of unexpected factors or events and may have an unanticipated adverse effect on the Company’s business.intentions.
All of these types of statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, are forward-looking statements. These forward-looking statements may be found in Item 2. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on Company expectations, which reflect estimates and assumptions made by Company management. These estimates and assumptions reflect management’s best judgment based on currently known market conditions and other factors. Although the Company believes such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond its control. In addition, management’s assumptions may prove to be inaccurate. The Company cautions that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and it cannot assure any reader that such statements will be realized or the events will occur. Actual results may differ materially from those anticipated or implied in forward-looking statements due to factors set forth in Item 1A. “Risk Factors” in this Quarterly

58

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2014,2015, and elsewhere in the Annual Report. The forward-looking statements speak only as of the date made and, other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
The forward-looking statements related to the Plan involve known and unknown risks, uncertainties, assumptions and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any results, performance or achievements expressed or implied by other forward-looking statements contained in this Quarterly Report on Form 10-Q, including but not limited to potential adverse effects related to the following: delisting of the Company’s units on NASDAQ; reorganization and related effects on the Company’s outstanding debt and outstanding units; potential effects of the industry downturn on the Company’s business, financial condition and results of operations; potential limitations on the Company’s ability to maintain contracts and other critical business relationships; requirements for adequate liquidity to fund the Company’s operations in the future, including obtaining sufficient financing on acceptable terms; and other matters related to the reorganization and the Company’s indebtedness, including any defaults related thereto.


Item 3.Quantitative and Qualitative Disclosures About Market Risk
The Company’s primary objective of the following information ismarket risks are attributable to provide forward-looking quantitative and qualitative information about potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changesfluctuations in commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how the Company views and manages its ongoing market risk exposures. All ofThese risks can affect the Company’s market risk sensitive instruments were entered intobusiness, financial condition, operating results and cash flows. See below for purposes other than trading.quantitative and qualitative information about these risks.
The following should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s 20142015 Annual Report on Form 10-K. The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”
Commodity Price Risk
The Company’s most significant market risk relates to prices of oil, natural gas and NGL. The Company expects commodity prices to remain volatile and unpredictable. As an important partcommodity prices decline or rise significantly, revenues and cash flows are likewise affected. In addition, future declines in commodity prices may result in noncash write-downs of the Company’s carrying amounts of its business strategy,assets.
Historically, the Company seeks to hedgehas hedged a significant portion of its forecasted production to reduce exposure to fluctuations in the prices of oil and natural gas prices and provide long-term cash flow predictability to manage its business, service debt, and if and when resumed, pay distributions. The current direct NGL hedging market is constrained in terms of price, volume, duration and number of counterparties, which limits the Company’s ability to effectively hedge its NGL production. The Company also hedges its exposure to natural gas differentials in certain operating areas but does not currently hedge exposure to oil differentials. By removing a portion of the price volatility associated with future production, the Company expects to mitigate, but not eliminate, the potential effects of variability in net cash provided by operating activities due to fluctuations in commodity prices.
The appropriate level of production to be hedged is an ongoing consideration and is based on a variety of factors, including among other things, current and future expected commodity market prices cost and availability of put option contracts, the level of acquisition activity and the Company’s overall risk profile, including leverage and size and scale considerations. In addition, when commodity prices are depressed and forward commodity price curves are flat or in backwardation, the Company may determine that the benefit of hedging its anticipated production at these levels is outweighed by its resultant inability to obtain higher revenues for its production if commodity prices recover during the duration of the contracts. As a result, the appropriate percentage of production volumes to be hedged may change over time.
The Company maintains a substantial portion of its hedges in the form of swap contracts. From time to time, the Company has chosen to purchase put option contracts primarily in connection with acquisition activity to hedge volumes in excess of those already hedged with swap contracts. In addition, as part of the 2013 acquisition of Berry Petroleum Company, now Berry Petroleum Company, LLC (“Berry”), the Company assumed certain derivative contracts that Berry had entered into prior to the acquisition date, including swap contracts, collars and three-way collars. The Company does not enter into derivative contracts for trading purposes. There have been no significant changes
In September 2016, the Company entered into commodity derivative contracts consisting of natural gas swaps for October 2016 through December 2017 and oil swaps for January 2017 through December 2017.
In April 2016 and May 2016, in connection with the Company’s restructuring efforts, LINN Energy canceled (prior to the Company’s objectives, general strategies or instrumentscontract settlement dates) all of its then-outstanding derivative contracts for net proceeds of approximately $1.2 billion. The net proceeds were used to managemake permanent repayments of a portion of the Company’s commodity price risk exposures fromborrowings outstanding under the year ended December 31, 2014.
In certain historical periods, the Company paid an incremental premium to increase the fixed price floors on existing put options because the Company typically hedges multiple yearsLINN Credit Facility. Also, in advanceMay 2016 and in some cases commodity prices had increased significantly beyond the initial hedge prices. AsJuly 2016, as a result the Company determined that the existing put option strike prices did not provide reasonable downside protection in the context of the current market.Chapter 11 proceedings, Berry’s counterparties canceled (prior to the contract settlement dates) all of Berry’s then-outstanding derivative contracts for net proceeds of approximately $2 million. The net proceeds were used to make permanent repayments of a portion of the borrowings outstanding under the Berry Credit Facility.
At September 30, 2016, the fair value of fixed price swaps was a net liability of approximately $992,000. A 10% increase in the index oil and natural gas prices above the September 30, 2016, prices would result in a net liability of approximately $37 million, which represents a decrease in the fair value of approximately $36 million; conversely, a 10% decrease in the index oil and natural gas prices below the September 30, 2016, prices would result in a net asset of approximately $35 million, which represents an increase in the fair value of approximately $36 million.
At December 31, 2015, the fair value of fixed price swaps and put option contracts and three-way collars was a net asset of approximately $1.7 billion. A 10% increase in the index oil and natural gas prices above the September 30,December 31, 2015, prices would result in a net asset of approximately $1.5 billion, which represents a decrease in the fair value of approximately $250$190 million; conversely, a 10% decrease in the index oil and natural gas prices below the December 31, 2015, prices would result in a net asset of approximately $1.9 billion, which represents an increase in the fair value of approximately $190 million.
The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets.
The prices of oil, natural gas and NGL have been extremely volatile, and the Company expects this volatility to continue. Prices for these commodities may fluctuate widely in response to relatively minor changes in the supply of and demand for such commodities, market uncertainty and a variety of additional factors that are beyond its control. Actual gains or losses recognized related to the Company’s derivative contracts depend exclusively on the price of the commodities on the specified settlement dates provided by the derivative contracts.

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk - Continued

conversely, a 10% decrease in the index oil and natural gas prices below the September 30, 2015, prices would result in a net asset of approximately $2.0 billion, which represents an increase in the fair value of approximately $249 million.
At December 31, 2014, the fair value of fixed price swaps, put option contracts and three-way collars was a net asset of approximately $1.8 billion. A 10% increase in the index oil and natural gas prices above the December 31, 2014, prices would result in a net asset of approximately $1.4 billion, which represents a decrease in the fair value of approximately $423 million; conversely, a 10% decrease in the index oil and natural gas prices below the December 31, 2014, prices would result in a net asset of approximately $2.2 billion, which represents an increase in the fair value of approximately $421 million.
The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets.
The prices of oil, natural gas and NGL have been extremely volatile, and the Company expects this volatility to continue. Prices for these commodities may fluctuate widely in response to relatively minor changes in the supply of and demand for such commodities, market uncertainty and a variety of additional factors that are beyond its control. Actual gains or losses recognized related to the Company’s derivative contracts will likely differ from those estimated at September 30, 2015, and December 31, 2014, and will depend exclusively on the price of the commodities on the specified settlement dates provided by the derivative contracts.
The Company cannot be assured that its counterparties will be able to perform under its derivative contracts. If a counterparty fails to perform and the derivative arrangement is terminated, the Company’s cash flows and ability to pay distributions could be impacted.
Interest Rate Risk
At September 30, 2015,2016, the Company had long-term debt outstanding under its credit facilities and term loan of approximately $4.0$2.8 billion which incurred interest at floating rates (see Note 6). A 1% increase in the LIBORrespective market rates would result in an estimated $40$28 million increase in annual interest expense.
At December 31, 2014,2015, the Company had long-term debt outstanding under its credit facilities and term loan of approximately $3.5$3.6 billion which incurred interest at floating rates. A 1% increase in the LIBORrespective market rates would result in an estimated $35$36 million increase in annual interest expense.
Counterparty Credit Risk
The Company accounts for its commodity derivatives at fair value on a recurring basis (see Note 8). The fair value of these derivative financial instruments includes the impact of assumed credit risk adjustments, which are based on the Company’s and counterparties’ published credit ratings, public bond yield spreads and credit default swap spreads, as applicable.
At September 30, 2015, the average public bond yield spread utilized to estimate the impact of the Company’s credit risk on derivative liabilities was approximately 2.11%. A 1% increase in the average public bond yield spread would result in an estimated $18,000 increase in net income for the nine months ended September 30, 2015. At September 30, 2015, the credit default swap spreads utilized to estimate the impact of counterparties’ credit risk on derivative assets ranged between 0% and 3.03%. A 1% increase in each of the counterparties’ credit default swap spreads would result in an estimated $17 million decrease in net income for the nine months ended September 30, 2015.
At December 31, 2014, the average public bond yield spread utilized to estimate the impact of the Company’s credit risk on derivative liabilities was approximately 1.85%. A 1% increase in the average public bond yield spread would result in an estimated $18,000 increase in net income for the year ended December 31, 2014. At December 31, 2014, the credit default swap spreads utilized to estimate the impact of counterparties’ credit risk on derivative assets ranged between 0% and 2.15%. A

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1% increase in each of the counterparties’ credit default swap spreads would result in an estimated $20 million decrease in net income for the year ended December 31, 2014.
Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, and the Company’s Audit Committee of the Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carried out an evaluation under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2015.2016.
Changes in the Company’s Internal Control Over Financial Reporting
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal controls were designed to provide reasonable assurance as to the reliability of its financial reporting and the preparation and presentation of the condensed consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There were no changes in the Company’s internal control over financial reporting during the third quarter of 20152016 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – Other Information

Item 1.Legal Proceedings
For certain statewide class action royalty payment disputes, where a reserve has not yet been established, the Company has deniedfiled notices advising that it has any liability on the claimshad filed for bankruptcy protection and has raised arguments and defenses that, if accepted by the courts, will result in no loss to the Company.seeking a stay, which was granted. In addition, the Company is involved in various other disputes arising in the ordinary course of business. The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.
The commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the Company’s bankruptcy estates. The Company intends to seek authority to pay all general claims in the ordinary course of business notwithstanding the commencement of the Chapter 11 proceedings in a manner consistent with the LINN RSA and Bank RSA. The Plan in the Chapter 11 proceedings, if confirmed, will provide for the treatment of claims against the Company’s bankruptcy estates, including prepetition liabilities that have not otherwise been satisfied or addressed during the Chapter 11 proceedings. See above under Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Chapter 11 Proceedings” for information about the Company’s entry into the LINN RSA and Bank RSA.
Item 1A.Risk Factors
Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our units are described in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015. Except as set forth below, as of the date of this report, these risk factors have not changed materially. This information should be considered carefully, together with other information in this report and other reports and materials we file with the United States Securities and Exchange Commission.
Our BoardAny plan of Directors has the ability to reserve any or all of our cash on hand at the end of a quarter for purposes other than distribution to unitholders, including reduction of indebtedness.
Althoughreorganization that we may have generated sufficient net cash providedimplement will be based in large part upon assumptions and analyses developed by operating activities during any particular quarter,us. If these assumptions and analyses prove to be incorrect, our Boardplan may be unsuccessful in its execution.
On October 21, 2016, we filed a proposed Plan with the Bankruptcy Court. Any plan of Directors hasreorganization that we may implement could affect both our capital structure and the ability under our limited liability company agreement to establish a cash reserve, which could encompass all of the cash otherwise available for distribution, to provide for the proper conduct of our business in both the shortownership, structure and long term. To provide for the proper conduct of our business, the Board of Directors can determine to reserve cash to reduce indebtedness, among other things. For example, in October 2015, our Board of Directors approved a suspension of our distribution. Our decision to reserve all of our cash on hand for such allowed purposes and not distribute it may significantly impact our unitholders, as well as our business and operations. The market value of our units may remain depressed or further decrease unless and until we resume a distribution. In addition, further refinancing or restructuring of our debt may require us to accept covenants that further restrict our ability to reinstate distributions. External perceptions of the healthoperation of our business and will reflect assumptions and analyses based on our liquidity may alsomanagement’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be impacted, which could further limitconsistent with management’s expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to accesschange substantially our capital markets, causestructure; (ii) our vendorsability to tightenobtain adequate liquidity and financing sources; (iii) our credit terms and cause a strainability to maintain customers’ confidence in our relationshipviability as a continuing entity and to attract and retain sufficient business from them; (iv) our ability to retain key employees; and (v) the overall strength and stability of general economic conditions of the financial and oil and natural gas industries, both in the U.S. and in global markets. The failure of any of these factors could materially adversely affect the successful reorganization of our business.
In addition, any plan of reorganization will rely upon financial projections, including with landownersrespect to revenues, EBITDA, capital expenditures, debt service and other business partners.
Ifcash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative than normal, because they may involve fundamental changes in the nature of our capital structure. Accordingly, we are unable to generate enough cash flowexpect that our actual financial condition and results of operations will differ, perhaps materially, from operations to service our indebtednesswhat we have anticipated. Consequently, there can be no assurance that the results or are unable to use future borrowings to refinance our indebtedness or fund other capital needs,developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our business or operations. The failure of any such results or developments to undertake alternative financing plans, which may have onerous terms or may be unavailable.materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.
We cannot assure you that our business will generate sufficient cash flow from operations to service our outstanding indebtedness, or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other capital needs. If we dohave substantial liquidity needs and may not generate sufficient cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:
refinancing or restructuring all or a portion of our debt;
obtaining alternative financing;
selling assets;
reducing or delaying capital investments;
seeking to raise additional capital; or
revising or delaying our strategic plans.
However, we cannot assure you that we would be able to implement alternative financing plans, if necessary, on commercially reasonable terms or at all, or that undertaking alternative financing plans, if necessary, would allow usobtain sufficient liquidity to meetconfirm a plan of reorganization and exit bankruptcy.
Although we have lowered our debt obligationscapital budget and capital requirements or that these actions would be permitted underreduced the termsscale of our various debt instruments.
Our inability to generate sufficient cash flow to satisfy our debt obligations or to obtain alternative financing could materially and adversely affectoperations significantly, our business financial condition, results ofremains capital intensive. In addition to the cash requirements necessary to fund ongoing operations, cash flowswe have incurred significant professional fees and prospects. Any failureother costs in connection with our Chapter 11 proceedings and expect that we will continue to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our creditincur significant

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Item 1A.    Risk Factors - Continued

rating, which could harmprofessional fees and costs throughout the Chapter 11 proceedings. There are no assurances that our abilitycurrent liquidity is sufficient to incurallow us to satisfy our obligations related to the Chapter 11 proceedings, allow us to proceed with the confirmation of a Chapter 11 plan of reorganization and allow us to emerge from bankruptcy. We can provide no assurance that we will be able to secure additional indebtedness on acceptable terms.Further, if for any reason we are unableinterim financing or exit financing sufficient to meet our debt serviceliquidity needs.
In connection with a plan of reorganization, we may, for federal and repayment obligations, we would be in default under the termsstate income tax purposes, trigger an actual or deemed sale of the agreements governing our debt, which would allow our creditors at that time to declare all outstanding indebtedness to be due and payable (which would in turn trigger cross-acceleration or cross-default rights between the relevant agreements), the lenders under our Credit Facilities, as defined in Note 6, could terminate their commitments to loan money, and the lenders could foreclose against our assets securing their borrowings and we could be forced into bankruptcy or liquidation. In addition, the lenders under our Credit Facilities could compel us to apply alla portion of our available cash to repay our borrowings or they could prevent us from making payments on our senior notes. If the amounts outstanding under our Credit Facilities or any of our other indebtedness were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.
We are currently dependent on our Credit Facilities for liquidity. Any further reduction of the borrowing bases under our Credit Facilities could reduce or eliminate our ability to borrow under the Credit Facilities andproperties which may require us to repay indebtedness under our Credit Facilities earlier than anticipated, which would adversely impact our liquidity.
Subject to amounts reserved in the discretion of our Board of Directors to provide for the proper conduct of our business, our limited liability company agreement provides that we make distributions to our unitholders of available cash. Therefore, we have not historically accumulated cash to preserve liquidity and have been dependent on the capital markets and our Credit Facilities for liquidity. Due to low commodity prices and other factors, the capital markets have been constrained. Although our Board of Directors approved a suspension of our distribution, if these constraints continue, we will continue to be primarily reliant on our Credit Facilities, and to the extent available, the excess of net cash provided by operating activities, for liquidity.
At September 30, 2015, there was approximately $1.2 billion of available borrowing capacity under the LINN Credit Facility but less than $1 million available under the Berry Credit Facility, each as defined in Note 6. Each of our Credit Facilities is subject to scheduled redeterminations, semi-annually in April and October, of its borrowing base, based primarily on reserve reports using lender commodity price expectations at such time. As a result of lower commodity prices, in May 2015, the borrowing base under the LINN Credit Facility decreased from $4.5 billion to $4.05 billion and the borrowing base under the Berry Credit Facility decreased from $1.4 billion to $1.2 billion. In October 2015, the borrowing base under the LINN Credit Facility was reaffirmed at $4.05 billion, subject to certain conditions related to the Berry Consolidation, as defined in Note 6, and the borrowing base under the Berry Credit Facility decreased from $1.2 billion to $900 million. Continued low commodity prices, reductions in our capital budget and the resulting reserve write-downs, along with the maturity schedule of our hedges, may impact future redeterminations.
To the extent our borrowing bases are reduced to or below the amount of borrowings outstanding, we would be unable to continue to borrow and any excess borrowings may become due within a short time span. We may not have the financial resources to make mandatory prepaymentsand our liquidity would be significantly impacted.
Unitholders are required to pay taxes on their share of our taxable income, including their share of ordinary income and capital gain upon dispositions of properties by us or cancellation of debt, even if they do not receive any cash distributions from us. A unitholder’s share of our taxable income, gain, loss and deduction, or specific items thereof, may be substantially different than the unitholder’s interest in our economic profits.
Our unitholders are required to pay federal income taxes and, in some cases, state and local income taxes on their share of our taxable income, whether or not they receive any cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from their share of our taxable income.
For example, our previously announced repurchases of approximately $783 million of our outstanding senior notes at prices lower than face amount have resulted, and any similar transactions in the future will result in the cancellationunfavorable tax consequences.
In connection with a plan of debt income that will be allocated to our unitholders. Some or all of our unitholdersreorganization, we may, be allocated substantial amounts of such taxable income,for federal and state income tax liabilities arising therefrom may exceed cash distributions. The ultimate effect to each unitholder would depend on the unitholder's individual tax position with respect to the units; however, taxable income allocations from us, including cancelationpurposes, trigger an actual or deemed sale of debt income, increase a unitholder’s tax basis in their units.

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In addition, we may sellall or a portion of our properties and use the proceeds to pay down debt or acquire other properties rather than distributing the proceeds to our unitholders, and some or all of oursatisfy debt. Our unitholders may be allocated substantial taxable income or loss with respect to that sale. A unitholder’s share ofsuch a sale, and our taxable income upon a disposition of property by us may be ordinary income or capital gain or some combination thereof. Even where we dispose of properties that are capital assets, what otherwise would be capital gains may be recharacterized as ordinary income in order to “recapture” ordinary deductions that were previously allocated to that unitholder related to the same property.
A unitholder’sunitholders’ share of our taxable income and gain (or specific items thereof) from such sale may be substantially greater than, or our tax losses and deductions (or specific items thereof) from such sale may be substantially less than, the unitholder’sour unitholders’ interest in our economic profits. This may occur, for example, inprofits because of allocations under section 704(c) of the case of a unitholder who purchases units at a time whenInternal Revenue Code.
We are subject to the valuerisks and uncertainties associated with Chapter 11 proceedings.
For the duration of our units or of one or more ofChapter 11 proceedings, our properties is relatively low or a unitholder who acquires units directly from us in exchange for property whose fair market value exceeds its tax basis at the time of the exchange. Cash distributions from us decrease a unitholder’s tax basis in its units, and the amount, if any, of excess distributions over a unitholder’s tax basis in its units will, in effect, become taxable income to the unitholder, above and beyond the unitholder’s share of our taxable income and gain (or specific items thereof).
Restrictive covenants in the indentures governing our senior notes and in the LINN Credit Facility could limit our growthoperations and our ability to financedevelop and execute our operations, fundbusiness plan, as well as our capital needs, respondcontinuation as a going concern, are subject to changing conditionsthe risks and engageuncertainties associated with bankruptcy. These risks include the following:
our ability to develop, confirm and consummate a Plan or alternative restructuring transaction;
our ability to obtain court approval with respect to motions filed in Chapter 11 proceedings from time to time;
our ability to maintain our relationships with our suppliers, service providers, customers, employees and other third parties;
our ability to maintain contracts that are critical to our operations;
our ability to execute our business activitiesplan;
the ability of third parties to seek and obtain court approval to terminate contracts and other agreements with us;
the ability of third parties to seek and obtain court approval to terminate or shorten the exclusivity period for us to propose and confirm a Plan, to appoint a Chapter 11 trustee, or to convert the Chapter 11 proceedings to a Chapter 7 proceeding; and
the actions and decisions of our creditors and other third parties who have interests in our Chapter 11 proceedings that may be inconsistent with our plans.
These risks and uncertainties could affect our business and operations in various ways. For example, negative events associated with our best interests.
The indentures governingChapter 11 proceedings could adversely affect our senior notes impose significant operatingrelationships with our suppliers, service providers, customers, employees, and other third parties, which in turn could adversely affect our operations and financial restrictions on us. These restrictions limit our ability and thatcondition. Also, we need the prior approval of our restricted subsidiaries to, among other things:
make distributions to our unitholders or make other restricted payments;
incur or guarantee additional indebtedness;
create or incur liens;
engage in mergers or consolidations or sell or otherwise dispose of all or substantially all of our assets;
make certain dispositions and transfers of assets;
engage inthe Bankruptcy Court for transactions with affiliates;
make investments; and
refinance certain indebtedness.
In addition,outside the LINN Credit Facility contains a number of significant covenants that, among other things, restrict our ability to:
dispose of assets;
incur or guarantee additional indebtedness;
make distributions to our unitholders;
create liens on our assets;
make investments or acquisitions;
repurchase, redeem or retire our capital stock or senior notes;
merge or consolidate, or transfer all or substantially all of our assets and the assets of our subsidiaries;
engage in specified transactions with subsidiaries and affiliates; and
pursue other corporate activities.
We may be prevented from taking advantageordinary course of business, opportunities that arise because of the limitations imposed on us by the restrictive covenants under the indentures governing our senior notes and under the LINN Credit Facility. The restrictions contained in those indentures and the LINN Credit Facility could:
which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with our Chapter 11 proceedings, we cannot accurately predict or quantify the ultimate impact of events that will occur during our Chapter 11 proceedings that may be inconsistent with our plans.
Operating under Bankruptcy Court protection for a long period of time may harm our business.
Our future results are dependent upon the successful confirmation and implementation of a plan of reorganization. A long period of operations under Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. So long as the Chapter 11 proceedings continue, our senior management will be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on our business operations. A prolonged period of operating under Bankruptcy Court protection also may make it more difficult to retain management and other key personnel necessary for or react to, market conditions, to meet capital needs or otherwise to restrictthe success and growth of our activities or business plan;business. In addition, the longer the Chapter 11 proceedings continue, the more likely it is that our customers and
adversely affect suppliers will lose confidence in our ability to financereorganize our operations, enter into acquisitions orbusiness successfully and will seek to engage inestablish alternative commercial relationships.
Furthermore, so long as the Chapter 11 proceedings continue, we will be required to incur substantial costs for professional fees and other business activities that would be in our interest.expenses associated with the administration of the Chapter 11 proceedings. The Chapter 11 proceedings may also
Also, the LINN Credit Facility requires us to maintain compliance with specified financial ratios and satisfy certain financial condition tests. Our ability to comply with these ratios and financial condition tests may be affected by events beyond our

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controlrequire us to seek debtor-in-possession financing to fund operations. If we are unable to obtain such financing on favorable terms or at all, our chances of successfully reorganizing our business may be seriously jeopardized, the likelihood that we instead will be required to liquidate our assets may be enhanced, and, as a result, any securities in us could become further devalued or become worthless.
Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to a plan of reorganization. Even once a plan of reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from Chapter 11 proceedings.
The LINN RSA and Bank RSA provide that our common units representing limited liability company interests (“units”) will be canceled in our Chapter 11 proceedings.
We have a significant amount of indebtedness that is senior to our existing units in our capital structure. The LINN RSA and Bank RSA provide that our existing equity will be canceled in our Chapter 11 proceedings and will be entitled to a limited recovery, if any. Any trading in our units during the pendency of the Chapter 11 proceedings is highly speculative and poses substantial risks to purchasers of our units.
We may not be able to obtain confirmation of a Chapter 11 plan of reorganization.
To emerge successfully from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to adequacy of disclosure with respect to the Plan, solicit and obtain the requisite acceptances of such a plan and fulfill other statutory conditions for confirmation of such a plan, which have not occurred to date. The confirmation process is subject to numerous, unanticipated potential delays, including a delay in the Bankruptcy Court’s commencement of the confirmation hearing regarding our Plan.
Prior to the Chapter 11 filing, we entered into the Bank RSA with certain of our creditors, and on October 21, 2016, we entered into the LINN RSA, which is intended to replace the Bank RSA with respect to the terms of the Restructuring of the LINN Debtors. The restructuring transactions contemplated by the LINN RSA and Bank RSA will be effectuated through a Plan. However, we may not receive the requisite acceptances of constituencies in the Chapter 11 proceedings to confirm our Plan. Even if the requisite acceptances of a Plan are received, the Bankruptcy Court may not confirm such a plan. The precise requirements and evidentiary showing for confirming a plan, notwithstanding its rejection by one or more impaired classes of claims or equity interests, depends upon a number of factors including, without limitation, the status and seniority of the claims or equity interests in the rejecting class (i.e., unsecured claims or secured claims, subordinated or senior claims).
If a Chapter 11 plan of reorganization is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if anything, holders of claims against us would ultimately receive with respect to their claims.
The LINN RSA and Bank RSA are subject to significant conditions and milestones that may be difficult for us to satisfy.
There are certain material conditions we must satisfy under the LINN RSA and Bank RSA, including the timely satisfaction of milestones in the anticipated Chapter 11 proceedings, such as confirmation of a Plan and effectiveness of a Plan. Our ability to timely complete such milestones is subject to risks and uncertainties that may be beyond our control.
If either the LINN RSA or Bank RSA is terminated, or if both agreements are terminated, our ability to confirm and consummate the Plan could be materially and adversely affected.
The LINN RSA and Bank RSA contain a number of termination events, upon the occurrence of which certain parties to the LINN RSA and Bank RSA, as applicable, may terminate the agreement. If the LINN RSA and Bank RSA are terminated, each of the parties thereto, as applicable, will be released from their obligations in accordance with the terms of the applicable agreement. Such termination may result in the loss of support for the Plan by the parties to the LINN RSA or Bank RSA, as applicable, which could adversely affect our ability to confirm and consummate the Plan. If the Plan is not consummated, there can be no assurance that any new Plan would be as favorable to holders of claims as the current Plan.

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Item 1A.    Risk Factors - Continued

Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
We face uncertainty regarding the adequacy of our liquidity and capital resources and have extremely limited, if any, access to additional financing. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with our Chapter 11 proceedings and expect that we will continue to incur significant professional fees and costs throughout our Chapter 11 proceedings. We cannot assure you that cash on hand and cash flow from operations will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Chapter 11 proceedings until we are able to emerge from our Chapter 11 proceedings.
Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with the Chapter 11 proceedings, (ii) our ability to maintain adequate cash on hand, (iii) our ability to generate cash flow from operations, (iv) our ability to develop, confirm and consummate a Chapter 11 plan or other alternative restructuring transaction, and (v) the cost, duration and outcome of the Chapter 11 proceedings.
As a result of the Chapter 11 proceedings, our financial results may be volatile and may not reflect historical trends.
During the Chapter 11 proceedings, we expect our financial results to continue to be volatile as restructuring activities and expenses, contract terminations and rejections, and claims assessments significantly impact our consolidated financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the bankruptcy filing. In addition, if we emerge from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization. We also may be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.
We may be subject to claims that will not be discharged in the Chapter 11 proceedings, which could have a material adverse effect on our financial condition and results of operations.
The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to May 12, 2016, or before confirmation of the plan of reorganization (i) would be subject to compromise and/or treatment under the plan of reorganization and/or (ii) would be discharged in accordance with the terms of the Plan. Any claims not ultimately discharged through the Plan could be asserted against the reorganized entities and may have an adverse effect on our financial condition and results of operations on a post-reorganization basis.
We may experience increased levels of employee attrition as a result of the Chapter 11 proceedings.
As a result of the Chapter 11 proceedings, we may experience increased levels of employee attrition, and our employees likely will face considerable distraction and uncertainty. A loss of key personnel or material erosion of employee morale could adversely affect our business and results of operations. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incent key employees to remain with us through the pendency of the Chapter 11 proceedings is limited by restrictions on implementation of incentive programs under the Bankruptcy Code. The loss of services of members of our senior management team could impair our ability to execute our strategy and implement operational initiatives, which would be likely to have a material adverse effect on our business, financial condition and results of operations.
In certain instances, a Chapter 11 case may be converted to a case under Chapter 7 of the Bankruptcy Code.
There can be no assurance as to whether we will successfully reorganize and emerge from the Chapter 11 proceedings or, if we do successfully reorganize, as to when we would emerge from the Chapter 11 proceedings.
If the Bankruptcy Court finds that it would be in the best interest of creditors and/or the Debtors, the Bankruptcy Court may convert our anticipated Chapter 11 bankruptcy case to a case under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the Debtors’ assets for distribution in accordance with the priorities

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Item 1A.    Risk Factors - Continued

established by the Bankruptcy Code. The Debtors believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to the Debtors’ creditors than those provided for in a Chapter 11 plan because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time rather than reorganizing or selling in a controlled manner the Debtors’ businesses as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.
We may be unable to hedge anticipated production volumes on attractive terms or at all, which would subject us to further potential commodity price uncertainty and could adversely affect our net cash provided by operating activities, financial condition and results of operations.
Our anticipated production volumes remain mostly unhedged. Based on current expectations for continued low future commodity prices, reduced hedging market liquidity and potential reduced counterparty willingness to enter into new hedges with us, we may be unable to meet these ratioshedge anticipated production volumes on attractive terms or at all, which would subject us to further potential commodity price uncertainty and could adversely affect our net cash provided by operating activities, financial condition tests. These financial ratio restrictions and financial condition testsresults of operations.
Our units are no longer listed on a national securities exchange and are quoted only in over-the-counter markets, which carries substantial risks and could limit continue to negatively impact our unit price, volatility and liquidity.
As a result of our failure to comply with the NASDAQ Global Select Market (“NASDAQ”) continued listing requirements, on May 24, 2016, our units began trading over the counter on the OTC Markets Group Inc.’s Pink marketplace under the trading symbol “LINEQ.”
Our delisting from the NASDAQ and commencement of trading on the OTC Pink Sheets marketplace has resulted and may continue to result in a reduction in some or all of the following, each of which could have a material adverse effect on our unitholders:
the liquidity of our units;
the market price of our units;
our ability to obtain future financings, make needed capital expenditures, withstand a continued downturnfinancing for the continuation of our operations;
the number of institutional and other investors that will consider investing in our business or a downturn in units;
the economy in general or otherwise conduct necessary corporate activities. Further declines in oil, natural gas and NGL prices, or a prolonged periodnumber of oil, natural gas and NGL prices at current levels, could eventually resultmarket makers in our failing to meet one or moreunits;
the availability of information concerning the financial covenants under the indentures governing our senior notes or the LINN Credit Facility, which could require us to refinance or amend such obligations resulting in the payment of consent fees or higher interest rates, or require us to raise additional capital at an inopportune time or on terms not favorable to us.
A breach of any of these covenants or our inability to comply with the required financial ratios or financial condition tests could result in a default under our senior notes or the LINN Credit Facility. A default under the LINN Credit Facility or the indentures governing our senior notes, if not cured or waived, could result in acceleration of all indebtedness outstanding thereunder. The accelerated debt would become immediately duetrading prices and payable, which would in turn trigger cross-acceleration and cross-default rights under our other debt. If that should occur, we may be unable to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us. In addition, if an event of default under the LINN Credit Facility occurred, the lenders could foreclose on the collateral and compel us to apply allvolume of our available cashunits; and
the number of broker-dealers willing to repayexecute trades in our borrowings or they could prevent us from making payments on our senior notes. If the amounts outstanding under the LINN Credit Facility, the senior notes or any of our other indebtedness were to be accelerated, our assets may not be sufficient to repay in full the money owed to the lenders or to our other debt holders.units.
Moreover, any new indebtedness we incur may impose financial restrictions and other covenants on us that may be more restrictive than the LINN Credit Facility or the indentures governing our senior notes.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The Company’s Board of Directors hashad authorized the repurchase of up to $250 million of the Company’s outstanding units from time to time on the open market or in negotiated purchases. The timing and amounts of any such repurchases are at the discretion of management, subject to market conditions and other factors, and in accordance with applicable securities laws and other legal requirements. The repurchase plan does not obligate the Company to acquire any specific number of units and may be discontinued at any time. The Company did not repurchase any units during the nine months ended September 30, 2015,2016, and as of September 30, 2015,2016, the entire amount remained available for unit repurchaseCompany does not intend to make any purchases under the program.
Item 3.Defaults Upon Senior Securities
NoneSee Part I. Item 1. Note 2 to the Company’s condensed consolidated financial statements entitled “Chapter 11 Proceedings, Ability to Continue as a Going Concern and Covenant Violations” which is incorporated in this item by reference.


Item 4.Mine Safety Disclosures
Not applicable

Item 5.Other Information
None


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Item 6.Exhibits

Exhibit Number Description
   
2.1Purchase and Sale Agreement by and between Linn Energy Holdings, LLC and Linn Operating, Inc., as seller, and Rock Oil Holdings LLC, as buyer, executed on July 2, 2015 (incorporated herein by reference to Exhibit 2.1 to Quarterly Report on Form 10-Q filed on July 30, 2015)
3.1Certificate of Formation of Linn Energy Holdings, LLC (now Linn Energy, LLC) (incorporated herein by reference to Exhibit 3.1 to Registration Statement on Form S-1S‑1 (File No. 333‑125501) filed on June 3, 2005)
3.2Certificate of Amendment to Certificate of Formation of Linn Energy Holdings, LLC (now Linn Energy, LLC) (incorporated herein by reference to Exhibit 3.2 to Registration Statement on Form S‑1 (File No. 333-125501) filed on June 3, 2005)
3.3Third Amended and Restated Limited Liability Company Agreement of Linn Energy, LLC dated September 3, 2010 (incorporated herein by reference to Exhibit 3.1 to Current Report on Form 8-K filed on September 7, 2010)
3.4Amendment No. 1, dated April 23, 2013, to Third Amended and Restated LLC Agreement of Linn Energy, LLC, dated September 3, 2010 (incorporated herein by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q filed on April 25, 2013)
10.1*10.1Separation Agreement by and betweenFirst Amendment to Linn Operating, Inc. and Kolja Rockov, effectiveEnergy, LLC Severance Plan, dated as of July 22, 2016 (incorporated herein by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q filed on August 31, 20154, 2016)
10.2SeventhFirst Amendment to Sixth AmendedRestructuring Support Agreement, dated as of September 8, 2016, by and Restated Creditamong the Debtors and the supporting parties thereto (incorporated herein by reference to Exhibit 10.1 to Current Report on Form 8-K filed on September 9, 2016)
10.3Second Amendment to Restructuring Support Agreement, dated as of September 23, 2016, by and among the Debtors and the supporting parties thereto (incorporated herein by reference to Exhibit 10.1 to Current Report on Form 8-K filed on September 26, 2016)
10.4Third Amendment to Restructuring Support Agreement, dated as of October 21, 2015,7, 2016, by and among the Debtors and the supporting parties thereto (incorporated herein by reference to Exhibit 10.3 to Current Report on Form 8-K filed on October 11, 2016)
10.5Fourth Amendment to Restructuring Support Agreement, dated as of October 14, 2016, by and among the Debtors and the supporting parties thereto (incorporated herein by reference to Exhibit 10.2 to Current Report on Form 8-K filed on October 18, 2016)
10.6First Amendment to Settlement Agreement, dated as of July 12, 2016 (incorporated herein by reference to Exhibit 10.1 to Current Report on Form 8-K filed on July 18, 2016)
10.7Second Amendment to Settlement Agreement, dated as of September 8, 2016 (incorporated herein by reference to Exhibit 10.2 to Current Report on Form 8-K filed on September 9, 2016)
10.8Third Amendment to Settlement Agreement, dated as of September 23, 2016 (incorporated herein by reference to Exhibit 10.2 to Current Report on Form 8-K filed on September 26, 2016)
10.9Fourth Amendment to Settlement Agreement, dated as of October 7, 2016 (incorporated herein by reference to Exhibit 10.4 to Current Report on Form 8-K filed on October 11, 2016)
10.10Restructuring Support Agreement, dated as of October 7, 2016, by and among the Linn Energy, LLC, as borrower,Debtors and the guarantors named therein, Wells Fargo Bank, National Association, as administrative agent, and each of the lenders partysupporting parties thereto (incorporated herein by reference to Exhibit 10.1 to Current Report on Form 8-K filed on October 22, 2015)11, 2016)
10.310.11EleventhFirst Amendment and Borrowing Baseto Restructuring Support Agreement, dated as of October 21, 2015,14, 2016, by and among Berry Petroleumthe Linn Debtors and the supporting parties thereto (incorporated herein by reference to Exhibit 10.1 to Current Report on Form 8-K filed on October 18, 2016)
10.12Backstop Commitment Letter, dated as of October 7, 2016, by and among the Company LLC, as borrower, Wells Fargo Bank, National Association, as administrative agent, and each of the lenders partybackstop parties thereto (incorporated herein by reference to Exhibit 10.2 to Current Report on Form 8-K filed on October 22, 2015)11, 2016)
10.13First Amended and Restated Restructuring Support Agreement, dated as of October 21, 2016, by and among the Linn Debtors and the supporting parties thereto (incorporated herein by reference to Exhibit 10.1 to Current Report on Form 8-K filed on October 27, 2016)

Item 6.Exhibits - Continued

Exhibit NumberDescription
10.14Backstop Commitment Agreement, dated as of October 25, 2016, by and among the Company and the parties thereto (incorporated herein by reference to Exhibit 10.2 to Current Report on Form 8-K filed on October 27, 2016)
31.1*Section 302 Certification of Mark E. Ellis, Chairman, President and Chief Executive Officer of Linn Energy, LLC
31.2*Section 302 Certification of David B. Rottino, Executive Vice President and Chief Financial Officer of Linn Energy, LLC
32.1*Section 906 Certification of Mark E. Ellis, Chairman, President and Chief Executive Officer of Linn Energy, LLC
32.2*Section 906 Certification of David B. Rottino, Executive Vice President and Chief Financial Officer of Linn Energy, LLC
101.INS**XBRL Instance Document
101.SCH**XBRL Taxonomy Extension Schema Document
101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**XBRL Taxonomy Extension Label Linkbase Document
101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document
*Filed herewith.
**Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 LINN ENERGY, LLC
 (Registrant)
  
Date: November 5, 20153, 2016/s/ Darren R. Schluter
 Darren R. Schluter
 Vice President and Controller
 (Duly Authorized Officer and Principal Accounting Officer)
  
  
Date: November 5, 20153, 2016/s/ David B. Rottino
 David B. Rottino
 Executive Vice President and Chief Financial Officer
 (Principal Financial Officer)


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