LINN ENERGY ANNOUNCES SECOND QUARTER 2010 RESULTS
HOUSTON, July 29, 2010 – LINN Energy, LLC (NASDAQ: LINE) announced today operating and financial results for the three months and six months ended June 30, 2010, and its outlook for the remainder of 2010.
The Company reported the following operational and financial achievements during the second quarter:
| · | The Black 50-1H, a Granite Wash horizontal well tested at an initial production rate of 60 MMcfe/d; |
| · | Average daily production of 256 MMcfe/d, compared to mid-point guidance of 240 MMcfe/d; |
| · | Lease operating expenses of $1.65 per Mcfe, compared to mid-point guidance of $1.92 per Mcfe; |
| · | Adjusted EBITDA of $175 million, compared to mid-point guidance of $164 million; |
| · | Adjusted net income of $0.36 per unit, compared to mid-point guidance of $0.31 per unit; and |
| · | Distribution coverage ratio of 1.20x, compared to mid-point guidance of 1.06x. |
The Company also reported the following significant highlights:
| · | Closed an acquisition of properties in northern Michigan for a contract price of $330 million; |
| · | Closed a bolt-on acquisition in the Permian Basin for a contract price of $305 million; |
| · | Announced an additional bolt-on acquisition in the Permian Basin for a contract price of $90 million; |
| · | Announced an acquisition in the East Texas Oil Field for a contract price of $95 million; and |
| · | Pro forma borrowing capacity, including available cash, of more than $900 million at quarter end. |
“Year to date, we have closed and/or announced approximately $1 billion in acquisitions,” said Mark E. Ellis, President and Chief Executive Officer. “We believe these acquisitions, along with continued exceptional results from the Granite Wash drilling program, create the strong potential for future growth in distributions.”
Operational Highlights
Granite Wash
The Company has continued to drill horizontal wells in the Granite Wash in less time than anticipated and below estimated costs, and plans to accelerate its Granite Wash program by increasing its operated rig count to three prior to year end. The Company’s first operated Granite Wash horizontal well, the McMahon 22-2H, came on line in May with an initial production rate of 19 MMcfe/d. The Black 50-1H well was brought on line in July with an initial production rate of 60 MMcfe/d (27 MMcf/d of natural gas, 3,190 Bbls/d of condensate, and should yield approximately 3,530 Bbls/d of natural gas liquids). The Company currently has three operated horizontal wells that are expected to be producing by the end of the third quarter. The Stein 1-3H well was recently drilled and is awaiting completion operations. The Thomas 5-8H well is currently drilling, with an expected completion in August. The Cooprider 1-34H well, located in the Oklahoma portion of the Granite Wash play, was recently spud, with expected completion in late September. The Company’s 2010 Granite Wash drilling program includes participation in 12 operated wells and 10 non-operated horizontal wells.
GRANITE WASH OPERATED WELLS: | State | Date of First Production | Working Interest | Gross IP Equivalent (MMcfe/d)* | Status |
| McMahan 22-2H | Texas | 05/19/2010 | 57% | 19.0 | Producing |
| Black 50-1H | Texas | 07/12/2010 | 63% | 60.2 | Producing |
| Stein 1-3H | Texas | Estimated Q3 | ~60% | --- | Awaiting Completion |
| Thomas 5-8H | Texas | Estimated Q3 | ~60% | --- | Drilling |
| Cooprider 1-34H | Oklahoma | Estimated Q3 | ~95% | --- | Drilling |
| NON-OPERATED WELLS: | | | | | |
| Tom Puryear 5-28H | Texas | 03/10/2010 | ~40% | 18.5 | Producing |
| Young 30-3H | Texas | 03/12/2010 | 9% | 31.0 | Producing |
| Elm Creek 7-6H | Texas | Estimated Q3 | 50% | --- | Completing |
| Flowers JR 42-9H | Texas | Estimated Q3 | 50% | --- | Drilling |
| McGuire 1-6H | Oklahoma | Estimated Q3 | ~10% | --- | Awaiting Completion |
* 24-hour initial test rate
Permian Basin
LINN Energy operates approximately 800 wells and produces more than 5,100 barrels of oil equivalent per day in the Permian Basin. The Company currently has two active rigs in the Permian Basin Wolfberry trend, where it expects to increase to three active rigs and drill or participate in 50 wells during the second half of the year. LINN has identified 165 Wolfberry drilling locations, which equates to a three-year inventory at current spacing. Results in this area to date have exceeded expectations from our acquisition model, and the Company will continue to target this area for additional acquisition opportunities.
Supplemental information on the Company’s operations can be found under Presentations at www.linnenergy.com.
Acquisitions Update
LINN Energy continues to pursue its growth through acquisitions strategy. Year to date, the Company has announced and/or closed acquisitions totaling approximately $1 billion, with:
| · | Proved reserves of approximately 90 MMboe; |
| · | Approximately 40 percent oil and NGL; and |
| · | Acquisition cost of $10.93 per barrel equivalent. |
During the second quarter, the Company entered a new operating area by closing a previously announced acquisition of natural gas properties located in the Antrim Shale of northern Michigan. The acquisition also provides the Company with rights to more than 26,000 net acres in northern Michigan that are prospective in the emerging Utica/Collingwood Shale play, which the Company believes will add future growth potential. Industry development of this shale formation is in the early stages, and LINN is currently evaluating options for its acreage within this area.
LINN Energy has continued to expand its Permian Basin position since first entering the area in August 2009. The Company has closed and/or announced seven Permian Basin acquisitions for an aggregate contract price of approximately $600 million in less than a year, closing two of the acquisitions totaling $310 million during the second quarter. On July 1, 2010, the Company announced another acquisition of properties in the Permian Basin for a contract price of $90 million, subject to closing conditions. This acquisition includes approximately 50 proved low-risk infill drilling and optimization opportunities and is expected to add proved reserves of approximately 7 MMBoe (approximately 78 percent oil), with a reserve life of approximately 19 years. The Company expects this acquisition to clos e on or before August 16, 2010.
On July 19, 2010, the Company announced an acquisition of oil and natural gas properties in the East Texas Oil Field for a contract price of $95 million, subject to closing conditions. In addition to approximately 95 proved low-risk workover opportunities, this acquisition is expected to add proved reserves of more than 8 MMBoe (100 percent proved developed), with a 5 percent decline rate and a reserve life of approximately 25 years. The Company anticipates that this acquisition will close on or before October 1, 2010.
Pro Forma Reserve Overview
As of December 31, 2009, pro forma for recent and pending acquisitions, the Company estimates:
| · | Proved reserves of more than 2.2 Tcfe; |
| · | 72 percent classified as proved developed; |
| · | 51 percent oil and NGL; |
| · | 22-year reserve-life index; and |
| · | More than 5,000 future drilling locations. |
Second Quarter 2010 Results
Production for the second quarter 2010 averaged 256 MMcfe/d, compared to mid-point guidance of 240 MMcfe/d. Production was positively impacted by better than expected operating results in all operating areas.
In the second quarter 2010, the Company’s hedged realized average price per Bbl was $96.03. This equates to a $23.82 per Bbl benefit from its hedge positions over its unhedged realized average price of $72.21 per Bbl. The hedged realized average price for natural gas was $8.58 per Mcf for the second quarter 2010. This equates to a $4.54 per Mcf benefit from its hedge positions over its unhedged realized average price of $4.04 per Mcf. Realized average price for NGL production was $36.32 per Bbl for the second quarter 2010.
Lease operating expenses for the second quarter 2010 were approximately $38 million, or $1.65 per Mcfe, compared to $31 million, or $1.63 per Mcfe, in the first quarter 2010. Taxes, other than income taxes, which consist primarily of severance and ad valorem taxes, during the second quarter 2010 were $10.4 million, or $0.45 per Mcfe, compared to $10.2 million, or $0.53 per Mcfe, during the first quarter 2010.
For the second quarter 2010, the Company’s distribution coverage ratio was 1.20x. The Company generated adjusted EBITDA (a non-GAAP financial measure) of $175 million during the second quarter 2010, compared to $152 million for the first quarter 2010. Adjusted EBITDA is a measure used by Company management to evaluate cash flow and the Company’s ability to sustain or increase distributions. A reconciliation of adjusted EBITDA to income from continuing operations is provided in this release (see Schedule 1). The most significant reconciling items are interest expense and noncash items, including the change in fair value of derivatives, and depreciation, depletion and amortization.
The Company utilizes commodity hedging to capture cash-flow margin and reduce cash-flow volatility. The Company reported gains on derivatives from oil and natural gas hedges of approximately $124 million for the quarter. This includes $41 million of noncash gains from a change in fair value of hedge positions, due to the decrease in commodity prices, and realized hedge revenues of $83 million during the second quarter. Noncash gains or losses do not affect adjusted EBITDA, cash flow from operations or the Company’s ability to pay cash distributions.
For the second quarter 2010, the Company reported income from continuing operations of $60 million, or $0.41 per unit, which includes noncash gains of $41 million, or $0.27 per unit, from the change in fair value of hedges covering future production and noncash gains of $41 million, or $0.28 per unit, on interest rate hedges and realized losses of $74 million, or $0.50 per unit, on canceled derivatives. Excluding these items, adjusted net income for the second quarter 2010 was $53 million, or $0.36 per unit (see Schedule 2).
Adjusted net income from continuing operations is a non-GAAP financial measure, and a reconciliation of adjusted net income to income from continuing operations is provided in this release (see Schedule 2). Adjusted net income is presented as a measure of the Company’s operational performance from oil and natural gas properties, prior to unrealized (gains) losses on derivatives, realized (gains) losses on canceled derivatives, impairment of goodwill and long-lived assets and (gains) losses on the sale of assets, net, because these items affect the comparability of operating results from period to period.
Unit Repurchase
During the second quarter, the Company repurchased approximately 487,000 units at an average cost of $23.79 per unit (total cost of approximately $11.6 million). To date, the Company has repurchased units totaling approximately $26 million.
Cash Distribution
On July 27, the Company’s Board of Directors announced a quarterly cash distribution for the second fiscal quarter of 2010 of $0.63 per unit, or $2.52 per unit on an annualized basis. The distribution will be paid on August 13, 2010, to unitholders of record as of the close of business on August 6, 2010.
Conference Call and Webcast
As previously announced, management will host a teleconference call on July 29, 2010, at 10 a.m. Central /11 a.m. Eastern to discuss LINN Energy’s second quarter 2010 results and its outlook for the remainder of 2010. Prepared remarks by Mark E. Ellis, President and Chief Executive Officer, and Kolja Rockov, Executive Vice President and Chief Financial Officer, will be followed by a question and answer period.
Investors and analysts are invited to participate in the call by phone at (877) 224-9081 (Conference ID: 88205057) or via the internet at www.linnenergy.com. A replay of the call will be available on the Company’s website or by phone at (800) 642-1687 (Conference ID: 88205057) for a seven-day period following the call.
Non-GAAP Measures
Adjusted EBITDA is a non-GAAP financial measure that is reconciled to its most comparable GAAP financial measure under the heading “Explanation and Reconciliation of Adjusted EBITDA” in this press release (see Schedule 1).
Adjusted net income is a non-GAAP financial measure that is reconciled to its most comparable GAAP financial measure under the heading “Explanation and Reconciliation of Adjusted Net Income” in this press release (see Schedule 2).
Estimates of proved reserves of pending acquisitions included in this press release were calculated as of the effective dates of the acquisitions using forward strip oil and natural gas prices. These estimates of proved reserves differ from those prepared in accordance with the rules and regulations of the Securities and Exchange Commission.
ABOUT LINN ENERGY
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 development company, with more than 2.2 Tcfe of proved reserves in producing U.S. basins as of year-end 2009 (pro forma for acquisitions announced and closed in 2010). More information about LINN Energy is available at www.linnenergy.com.
| CONTACTS: | LINN ENERGY, LLC |
| | |
| | Investors: |
| | Clay Jeansonne, Vice President – Investor Relations |
| | 281-840-4193 |
| | |
| | Media: |
| | Paula Beasley, Manager, Public Affairs & Communications |
| | 281-840-4183 |
This press release includes “forward-looking statements.” All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include but are not limited to forward-looking statements about acquisitions and the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, including the Company’s drilling program, production, hedging activities, capital expenditure levels and other guidance included in this press release. These statements are based on certain assumptions made by the Company based on management’s experie nce and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to the Company’s financial performance and results, availability of sufficient cash flow to pay distributions and execute its business plan, prices and demand for oil, natural gas and natural gas liquids, the ability to replace reserves and efficiently develop current reserves and other important factors that could cause actual results to differ materially from those projected as described in the Company’s reports filed with the Securities and Exchange Commission. See “Risk Factors” in the Company’s Annual Report filed on Form 10-K a nd other public filings and press releases.
Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.
The financial summary follows; all amounts within are unaudited.
Adjusted EBITDA (a non-GAAP financial measure), as defined by the Company, may not be comparable to similarly titled measures used by other companies. Therefore, adjusted EBITDA should be considered in conjunction with income from continuing operations and other performance measures prepared in accordance with GAAP, such as operating income or cash flow from operating activities. Adjusted EBITDA should not be considered in isolation or as a substitute for GAAP measures, such as net income, operating income or any other GAAP measure of liquidity or financial performance.
The Company defines adjusted EBITDA as income (loss) from continuing operations plus the following adjustments:
Adjusted EBITDA is a measure used by Company management to indicate (prior to the establishment of any reserves by its Board of Directors) the cash distributions the Company expects to make to its unitholders. Adjusted EBITDA is also a quantitative measure used throughout the investment community with respect to publicly-traded partnerships and limited liability companies.
The following presents a reconciliation of income (loss) from continuing operations to adjusted EBITDA:
Net cash used in operating activities for the three months ended June 30, 2010, was approximately $(4.5) million and includes cash interest payments of approximately $17.8 million, premiums paid for commodity derivatives of approximately $76.0 million, realized losses on canceled derivatives of approximately $74.3 million and other items totaling approximately $11.4 million that are not included in adjusted EBITDA. Net cash provided by operating activities for the three months ended June 30, 2009, was approximately $163.3 million and includes cash interest payments of approximately $8.4 million, cash settlements on interest rate derivatives of approximately $10.7 million, cash received to settle certain post-closing matters related to the Woodford Shale sale of approximately $(13.9) million and other items totaling ap proximately $(25.2) million that are not included in adjusted EBITDA. Net cash provided by operating activities for the six months ended June 30, 2010, was approximately $75.2 million and includes cash interest payments of approximately $39.5 million, cash settlements on interest rate derivatives of approximately $11.1 million, premiums paid for commodity derivatives of approximately $91.0 million, realized losses on canceled derivatives of approximately $74.3 million and other items totaling approximately $35.4 million that are not included in adjusted EBITDA. Net cash provided by operating activities for the six months ended June 30, 2009, was approximately $258.3 million and includes cash interest payments of approximately $29.0 million, cash settlements on interest rate derivatives of approximately $19.8 million, realized gains on canceled derivatives of approximately $(4.2) million and other items totaling approximately $(21.5) million that are not included in adjusted EB ITDA.
Adjusted net income (a non-GAAP financial measure), as defined by the Company, may not be comparable to similarly titled measures used by other companies. Therefore, adjusted net income should be considered in conjunction with net income from continuing operations and other performance measures prepared in accordance with GAAP. Adjusted net income should not be considered in isolation or as a substitute for GAAP measures, such as net income or any other GAAP measure of liquidity or financial performance. Adjusted net income is a performance measure used by management to evaluate the Company’s operational performance from oil and natural gas properties, prior to unrealized (gains) losses on derivatives, realized (gains) losses on canceled derivatives, impairment of goodwill and long-lived assets and ( gains) losses on sale of assets, net.
The following presents a reconciliation of income (loss) from continuing operations to adjusted net income:
Note: Financial and operational estimates assume closing of pending acquisitions.
