HOUSTON, Aug. 7, 2008 (PRIME NEWSWIRE) -- Linn Energy, LLC (Nasdaq:LINE) announced today financial and operating results for the three and six months ended June 30, 2008 and its outlook for the remainder of the year. The Company highlights the following:
* Record average production of 223.6 million cubic feet of natural gas equivalent per day (MMcfe/d) compared to mid-point guidance of 220.0 MMcfe/d; * Lease operating expense of $1.44 per thousand cubic feet of natural gas equivalent (Mcfe) compared to guidance of $1.45 per Mcfe; * Record adjusted EBITDA of $162.1 million compared to guidance of $136.0 million; * Record distribution coverage ratio of 1.57x compared to guidance of 1.23x; * Increased projected distribution coverage ratio of 1.27x for 2008 compared to guidance of 1.18x; * Commodity hedge restructuring; and * Completed $256 million senior notes offering, sale of Appalachian Basin assets for a contract price of $600 million and announced the sale of the Verden assets for a contract price of $185 million, which provide increased financial flexibility.
"Second quarter 2008 proved to be another record setting quarter for Linn Energy," said Michael C. Linn, Chairman and Chief Executive Officer. "The Company posted the highest production rates, adjusted EBITDA and distributable cash flow in its history. In addition to our strong quarterly results, we have taken several steps to continue to improve our balance sheet. With our recent bond offering, sale of Appalachian Basin assets and the pending sale of the Verden assets, we will have significantly strengthened our financial flexibility to pursue growth through continued successful drilling and acquisitions."
Second Quarter 2008 Results (Comparative Results for First Quarter 2008 Reflect Continuing Operations)
During the second quarter 2008, Linn Energy generated adjusted EBITDA (a non-GAAP financial measure) of $162.1 million compared to $127.3 million for the first quarter 2008. The Company's distribution coverage ratio was 1.57x for the quarter, compared to guidance of 1.23x. Adjusted EBITDA is the primary 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 net income is provided in this release (see Schedule 1). The most significant reconciling items between net income to adjusted EBITDA are interest expense and non-cash items including the change in fair value of derivatives and depreciation, depletion and amortization.
Average production was 223.6 MMcfe/d for the second quarter 2008, compared to 195.6 MMcfe/d for the first quarter 2008. The increase in production volumes was primarily attributable to acquisition and drilling activities. Realized prices per barrel (Bbl) for oil and NGL production were $81.10 and $70.55, respectively, for the second quarter 2008, compared to $74.98 and $65.84 per Bbl for the first quarter 2008. Realized prices for natural gas were $9.92 per thousand cubic feet (Mcf) for the second quarter 2008, compared to $8.22 per Mcf for the first quarter 2008. Lease operating expense was $1.44 per Mcfe for the second quarter 2008, compared to mid-point guidance of $1.45 per Mcfe.
Oil, natural gas and NGL revenues were $255.6 million for the second quarter 2008, compared to $175.9 million for the first quarter 2008. The increase in oil, natural gas and NGL revenues was primarily attributable to acquisition and drilling activities and higher realized commodity prices.
The Company utilizes commodity and interest rate hedging to capture cash flow margin and reduce cash flow volatility. Due to the significant increase in commodity prices during the second quarter, the Company reported a loss on derivatives from oil and gas hedges of approximately $870.8 million for the quarter, including $773.4 million of non-cash change in fair value of hedge positions covering anticipated future production through 2014. In addition to the loss on oil and gas derivatives, the Company also reported a non-cash gain on interest rate hedges of $35.8 million during the second quarter 2008. Non-cash losses or gains do not affect adjusted EBITDA, cash flow from operations or the Company's ability to pay its cash distributions.
For the second quarter 2008, the Company reported a net loss from continuing operations of $725.4 million, or $6.35 per unit, which includes a non-cash loss of $773.4 million, or $6.76 per unit, from the change in fair value of commodity hedges covering future production, a non-cash gain of $35.8 million, or $0.31 per unit, on interest rate hedges and a realized loss of $68.2 million, or $0.60 per unit, from hedge cancellations. Excluding these items, adjusted net income from continuing operations for the second quarter 2008 would have been $80.4 million, or $0.70 per unit. Adjusted net income from continuing operations is a non-GAAP financial measure and a reconciliation of adjusted net income from continuing operations to net income from continuing operations is provided in this release (see Schedule 2). Adjusted net income is presented because the excluded items affect the comparability of operating results from period to period.
Operational Update
In the Mid-Continent region, during the second quarter 2008 the Company operated a total of 10 drilling rigs and completed 49 wells with a 100% success rate. In the Texas Panhandle Granite Wash area of the Mid-Continent region, five rigs drilled 10 wells during the quarter, and for the first six months the Company completed 21 wells. In the Frye Ranch and Stiles Ranch areas of the Texas Panhandle, 11 wells were completed with initial production rates that averaged 2.8 MMcfe/d during the first six months of 2008. In the Buffalo Wallow and Dyco areas, nine wells were completed during the first half of 2008 with initial production rates that averaged 2.0 MMcfe/d. The Company anticipates drilling 26 wells in the Texas Panhandle Granite Wash area during the remainder of 2008. Drilling continues to progress in the Twin Channel joint venture area, where the Company has elected to participate in 20 wells to date with funds provided by its partner. Average initial production for the first 10 wells that have been completed has been approximately 2.2 MMcfe/d. The Company's Granite Wash drilling program results continue to exceed expectations.
In the shallow Texas Panhandle Brown Dolomite formation of the Mid-Continent region, the Company operated four rigs and drilled 34 wells during the quarter, and for the first six months 78 wells were completed with a 100% success rate. The Company plans to drill approximately 22 additional wells in this region during the remainder of 2008.
In the Naval Reserve Unit, the Company has completed 35 water flood reactivation projects that returned non-producing and injector wells back to active service resulting in a production increase of approximately 100 barrels of oil per day. During the first six months of 2008, the Company drilled 16 wells in the Osage Hominy Unit to the Okesa formation and eight wells are currently being completed. The Company is also permitting 15 wells to begin development of the Chat formation in Osage County, Oklahoma.
Sale of Appalachian Basin and Verden Assets
On July 1, 2008, the Company completed the sale of its interests in oil and gas properties located in the Appalachian Basin to XTO Energy, Inc. for a contract price of $600 million, subject to closing adjustments. The Company used net proceeds from the sale to reduce indebtedness. The assets include approximately 197 Bcfe of proved reserves at December 31, 2007, with production of approximately 25 MMcfe/d.
In addition, on June 3, 2008, the Company entered into an agreement to sell certain of its assets in the Verden area in Oklahoma to Laredo Petroleum, Inc. for a contract price of $185 million, subject to closing adjustments. The Company plans to use net proceeds from the sale to reduce indebtedness. The Verden assets include approximately 50,000 net acres and 45 Bcfe of proved reserves at December 31, 2007, with production of approximately 12 MMcfe/d.
Cash Distributions
In July 2008, the Company's Board of Directors declared a quarterly cash distribution of $0.63 per unit, or $2.52 per unit on an annualized basis, with respect to the second quarter 2008. The distribution will be paid on August 14, 2008 to unitholders of record as of the close of business on August 7, 2008.
Hedge Restructuring Update
In the third quarter 2008, the Company made several changes to its commodity derivative portfolio, comprised of the following:
Oil Swap Restructuring
The Company took advantage of the relative strength of crude oil prices in 2013 and 2014 by reallocating swap value from those years and canceling in-the-money collars to raise swap prices in years 2009 through 2012, as detailed in the table below.
Year Year Year Year Year Year
2009 2010 2011 2012 2013 2014
------ ------ ------ ------ ------ ------
Fixed Price Oil Swaps:
Before Restructuring:
Hedged Volume (MBbls) 2,437 2,150 2,073 2,025 900 --
Average Price ($/Bbl) $78.07 $78.28 $79.65 $77.65 $72.22 $ --
After Restructuring:
Hedged Volume (MBbls) 2,437 2,150 2,073 2,025 2,275 2,200
Average Price ($/Bbl) $90.00 $90.00 $84.22 $84.22 $84.22 $84.22
Year Year
2013 2014
-------- --------
Oil Collars:
Before Restructuring:
Hedged Volume (MBbls) 1,375 2,200
Average Floor Price ($/Bbl) $110.00 $110.00
Average Ceiling Price ($/Bbl) $152.00 $152.00
After Restructuring:
Hedged Volume (MBbls) -- --
Average Floor Price ($/Bbl) $ -- $ --
Average Ceiling Price ($/Bbl) $ -- $ --
Oil Put Strike Increase
The Company also took advantage of the increase in crude oil prices by locking in these gains in the form of put strike increases. The Company increased the weighted average put strike price from $72.13 to $120.00 per barrel in 2009 and from $70.56 to $110.00 per barrel in 2010 for a total cost of $60.6 million.
Use of Non-GAAP Measures
Adjusted EBITDA from continuing operations and adjusted net income from continuing operations are non-GAAP financial measures that are reconciled to their most comparable GAAP financial measures in Schedules 1 and 2 in this press release.
Conference Call
As previously announced, management will host a teleconference call on August 7, 2008 at 10:00 AM Central/11:00 AM Eastern to discuss the Company's second quarter 2008 results and its outlook for the remainder of the year. Prepared remarks by senior management will be followed by a question and answer period.
Investors and analysts are invited to participate in the call by phone at (800) 901-5231 (Passcode: 57706655) 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 (888) 286-8010 (Passcode: 87384202) for a seven-day period following the call.
ABOUT LINN ENERGY
Linn Energy is an independent oil and gas company focused on the development and acquisition of long life properties which complement its asset profile in producing basins within the United States. More information about Linn Energy is available on the internet at www.linnenergy.com.
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 experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to 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, 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 and 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.
Schedule 1
Linn Energy, LLC
Explanation and Reconciliation of Adjusted EBITDA
Adjusted EBITDA
This press release includes the non-generally accepted accounting principle ("non-GAAP") financial measure of adjusted EBITDA. The accompanying schedules provide reconciliations of this non-GAAP financial measure to its most directly comparable financial measure calculated and presented in accordance with United States generally accepted accounting principles ("GAAP"). This non-GAAP financial measure should not be considered as an alternative to GAAP measures, such as net income, operating income or any other GAAP measure of liquidity or financial performance.
The Company defines adjusted EBITDA as net income (loss) from continuing operations plus the following adjustments:
* Net operating cash flow from acquisitions and divestitures, effective date through closing date; * Interest expense; * Depreciation, depletion and amortization; * Write-off of deferred financing fees and other; * (Gain) loss on sale of assets; * Accretion of asset retirement obligation; * Unrealized (gain) loss on commodity derivatives; * Unrealized (gain) loss on interest rate derivatives; * Realized loss on canceled derivatives; * Unit-based compensation and warrant expenses; * Data license expenses; and * Income tax (benefit) provision.
Adjusted EBITDA is a significant non-GAAP performance metric 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 pay unitholders. Specifically, this financial measure indicates to investors whether or not the Company is generating cash flow at a level that can sustain or support an increase in its quarterly distribution rates. Adjusted EBITDA is also a quantitative metric used throughout the investment community with respect to publicly-traded partnerships and limited liability companies.
The following presents a reconciliation of consolidated net loss
from continuing operations to adjusted EBITDA:
Three Months Ended Six Months Ended
------------------------------ --------------------
June 30, March 31, June 30, June 30, June 30,
2008 2008 2007 2008 2007
--------- --------- -------- ---------- --------
(in thousands)
Net loss from
continuing
operations $(725,381) $(258,959) $(17,064) $ (984,340) $(85,485)
Plus:
Net operating
cash flow from
acquisitions,
effective date
through closing
date(1) 346 8,321 1,923 8,667 4,693
Interest
expense, cash 24,054 23,354 4,659 47,408 8,416
Interest
expense,
noncash (722) 1,939 (38) 1,217 174
Depreciation,
depletion and
amortization 50,402 44,081 6,736 94,483 12,470
Write-off of
deferred
financing fees
and other 3,377 -- (255) 3,377 549
(Gain) loss on
sale of assets (4) -- 60 (4) (885)
Accretion of
asset
retirement
obligation 484 402 160 886 206
Unrealized loss
on commodity
derivatives 773,397 253,547 24,887 1,037,382 94,401
Reclassification
of derivative
settlements(2) -- 10,438 (980) -- (2,360)
Unrealized
(gain) loss on
interest rate
derivatives (35,825) 37,952 (274) 2,127 (115)
Realized loss on
canceled
derivatives(3) 68,197 -- -- 68,197 --
Unit-based
compensation
and warrant
expenses 3,874 3,611 3,851 7,485 7,503
Data license
expenses 47 2,428 -- 2,475 --
Income tax
(benefit)
provision(4) (164) 209 179 45 4,030
--------- --------- -------- ---------- --------
Adjusted EBITDA
from continuing
operations $ 162,082 $ 127,323 $ 23,844 $ 289,405 $ 43,597
========= ========= ======== ========== ========
Adjusted EBITDA
from
discontinued
operations $ 863 $ 13,718 $ 11,760 $ 14,581 $ 24,251
========= ========= ======== ========== ========
(1) Includes net operating cash flow from acquisitions through the
date of this report.
(2) During the second quarter 2008, the Company revised its
classification of realized and unrealized gains (losses) on gas
derivative contracts in order to match realized gains (losses)
with the related production. All prior periods amounts have
been reclassified to conform to current period presentation.
This reclassification had no effect on the Company's reported
net income.
(3) During the three and six months ended June 30, 2008, the Company
canceled (before the contract settlement date) hedge contracts
on estimated future gas production primarily associated with
properties in the Appalachian Basin resulting in a realized loss
of approximately $68.2 million.
(4) The Company's taxable subsidiaries generated net operating
losses for the year ended December 31, 2006. Management has
subsequently recovered expenses through an intercompany charge
for services from Linn Operating, Inc. to Linn Energy which
resulted in a corresponding tax expense in the three and six
months ended June 30, 2007.
Schedule 2
Linn Energy, LLC
Explanation and Reconciliation of Adjusted Net Income
Adjusted Net Income from Continuing Operations
Adjusted net income from continuing operations is a non-GAAP
performance measure used by Company management to evaluate its
operational performance from oil and gas properties, prior to
derivative gains and losses. The following presents a
reconciliation of consolidated net loss from continuing operations
to adjusted net income from continuing operations:
Three Months Ended Six Months Ended
------------------------------ --------------------
June 30, March 31, June 30, June 30, June 30,
2008 2008 2007 2008 2007
--------- --------- -------- ---------- --------
(in thousands, except per unit amounts)
Net loss from
continuing
operations $(725,381) $(258,959) $(17,064) $ (984,340) $(85,485)
Plus:
Unrealized loss
on commodity
derivatives 773,397 253,547 24,887 1,037,382 94,401
Reclassification
of derivative
settlements -- 10,438 (980) -- (2,360)
Unrealized
(gain) loss on
interest rate
derivatives (35,825) 37,952 (274) 2,127 (115)
Realized loss on
canceled
derivatives 68,197 -- -- 68,197 --
--------- --------- -------- ---------- --------
Adjusted net
income from
continuing
operations $ 80,388 $ 42,978 $ 6,569 $ 123,366 $ 6,441
========= ========= ======== ========== ========
Net loss from
continuing
operations per
unit - basic $ (6.35) $ (2.28) $ (0.29) $ (8.63) $ (1.63)
Plus, per unit:
Unrealized loss
on commodity
derivatives 6.76 2.24 0.42 9.09 1.80
Reclassification
of derivative
settlements -- 0.09 (0.02) -- (0.05)
Unrealized
(gain) loss on
interest rate
derivatives (0.31) 0.33 -- 0.02 --
Realized loss on
canceled
derivatives 0.60 -- -- 0.60 --
--------- --------- -------- ---------- --------
Adjusted net
income from
continuing
operations per
unit - basic $ 0.70 $ 0.38 $ 0.11 $ 1.08 $ 0.12
========= ========= ======== ========== ========
Schedule 3
Linn Energy, LLC
Consolidated Statements of Operations
Three Months Ended Six Months Ended
------------------------------ ---------------------
June 30, March 31, June 30, June 30, June 30,
2008 2008 2007 2008 2007
--------- --------- -------- ----------- --------
(in thousands, except per unit amounts)
Revenues:
Oil, gas and
natural gas
liquid sales $ 255,586 $ 175,872 $ 32,495 $ 431,458 $ 56,062
Loss on oil and
gas
derivatives (870,804) (268,794) (17,707) (1,139,598) (78,148)
Natural gas
marketing
revenues 3,593 2,816 2,740 6,409 4,661
Other revenues 642 479 487 1,121 1,132
--------- --------- -------- ----------- --------
(610,983) (89,627) 18,015 (700,610) (16,293)
--------- --------- -------- ----------- --------
Expenses:
Operating
expenses 46,641 36,121 9,743 82,762 17,609
Natural gas
marketing
expenses 3,260 2,417 2,323 5,677 3,975
General and
administrative
expenses 18,171 19,227 11,887 37,398 22,193
Data license
expenses 47 2,428 -- 2,475 --
Depreciation,
depletion and
amortization 50,402 44,081 6,736 94,483 12,470
--------- --------- -------- ----------- --------
118,521 104,274 30,689 222,795 56,247
--------- --------- -------- ----------- --------
(729,504) (193,901) (12,674) (923,405) (72,540)
--------- --------- -------- ----------- --------
Other income and
(expenses):
Interest
expense, net
of amounts
capitalized (23,332) (25,293) (4,621) (48,625) (8,590)
Gain (loss) on
interest rate
swaps 31,604 (39,393) 274 (7,789) 197
Other, net (4,313) (163) 136 (4,476) (522)
--------- --------- -------- ----------- --------
3,959 (64,849) (4,211) (60,890) (8,915)
--------- --------- -------- ----------- --------
Loss from
continuing
operations
before income
taxes (725,545) (258,750) (16,885) (984,295) (81,455)
Income tax
benefit
(provision) 164 (209) (179) (45) (4,030)
--------- --------- -------- ----------- --------
Loss from
continuing
operations (725,381) (258,959) (17,064) (984,340) (85,485)
Income (loss)
from
discontinued
operations, net
of taxes 13,239 (400) (62) 12,839 512
--------- --------- -------- ----------- --------
Net loss $(712,142) $(259,359) $(17,126) $ (971,501) $(84,973)
========= ========= ======== =========== ========
Net income
(loss) per
unit:
Loss from
continuing
operations -
basic $ (6.35) $ (2.28) $ (0.29) $ (8.63) $ (1.63)
========= ========= ======== =========== ========
Loss from
continuing
operations -
diluted $ (6.35) $ (2.28) $ (0.29) $ (8.63) $ (1.63)
========= ========= ======== =========== ========
Income (loss)
from
discontinued
operations,
net of taxes -
basic $ 0.12 $ -- $ -- $ 0.11 $ 0.01
========= ========= ======== =========== ========
Income (loss)
from
discontinued
operations,
net of taxes -
diluted $ 0.12 $ -- $ -- $ 0.11 $ 0.01
========= ========= ======== =========== ========
Net loss -
basic $ (6.23) $ (2.28) $ (0.29) $ (8.52) $ (1.62)
========= ========= ======== =========== ========
Net loss -
diluted $ (6.23) $ (2.28) $ (0.29) $ (8.52) $ (1.62)
========= ========= ======== =========== ========
Weighted average
units
outstanding:
Units - basic 114,252 113,757 59,293 114,005 52,413
========= ========= ======== =========== ========
Units - diluted 114,252 113,757 59,293 114,005 52,413
========= ========= ======== =========== ========
Distributions
declared per
unit $ 0.63 $ 0.63 $ 0.52 $ 1.26 $ 1.04
========= ========= ======== =========== ========
Schedule 4
Linn Energy, LLC
Operating Statistics - Continuing Operations
Three Months Ended Six Months Ended
---------------------------- ------------------
June 30, March 31, June 30, June 30, June 30,
2008 2008 2007 2008 2007
-------- -------- -------- -------- --------
Average daily
production -
continuing
operations:
Gas (MMcf/d) 130.6 122.4 16.4 126.1 15.2
Oil (MBbls/d) 9.3 7.8 2.7 8.6 2.5
NGL (MBbls/d) 6.2 4.4 2.2 5.3 1.8
Total (MMcfe/d) 223.6 195.6 45.8 209.5 41.0
Average daily
production -
discontinued
operations:
Total (MMcfe/d) 24.0 24.8 22.8 24.4 23.4
Weighted average
prices (hedged):(1)
Gas (Mcf) $ 9.92 $ 8.22 $ 8.89 $ 9.10 $ 9.13
Oil (Bbl) $ 81.10 $ 74.98 $ 60.71 $ 78.37 $ 60.29
NGL (Bbl) $ 70.55 $ 65.84 $ 52.63 $ 68.60 $ 53.81
Weighted average
prices (unhedged):(2)
Gas (Mcf) $ 9.96 $ 7.66 $ 6.16 $ 8.85 $ 6.33
Oil (Bbl) $ 114.99 $ 90.45 $ 52.99 $ 103.88 $ 49.24
NGL (Bbl) $ 70.55 $ 65.84 $ 51.42 $ 68.60 $ 50.08
Representative NYMEX
oil and gas prices:
Gas (MMBtu) $ 10.94 $ 8.03 $ 7.55 $ 9.49 $ 7.16
Oil (Bbl) $ 123.98 $ 97.90 $ 65.03 $ 110.94 $ 61.65
Costs per Mcfe of
production:
Operating expenses:
Lease operating
and other $ 1.44 $ 1.31 $ 1.72 $ 1.38 $ 1.79
Production and ad
valorem taxes $ 0.85 $ 0.72 $ 0.62 $ 0.79 $ 0.58
General and
administrative
expenses(3) $ 0.89 $ 1.08 $ 2.85 $ 0.98 $ 2.99
Depreciation,
depletion and
amortization $ 2.48 $ 2.48 $ 1.62 $ 2.48 $ 1.68
(1) Includes the effect of realized gains (losses) of $(29.2)
million, $(4.8) million and $6.2 million on derivatives for the
three months ended June 30, 2008, March 31, 2008 and June 30,
2007, respectively. Includes the effect of realized gains
(losses) of $(34.0) million and $13.9 million on derivatives for
the six months ended June 30, 2008 and 2007, respectively.
During the three and six months ended June 30, 2008, the Company
canceled (before the contract settlement date) derivative
contracts on estimated future gas production primarily
associated with properties in the Appalachian Basin resulting in
a realized loss of approximately $68.2 million. The realized
losses for the three and six months ended June 30, 2008 noted
above exclude this loss.
(2) Does not include the effect of realized gains (losses) on
derivatives.
(3) The measure for the three months ended June 30, 2008, March 31,
2008 and June 30, 2007 includes approximately $3.8 million, $3.6
million and $3.9 million, respectively, of non-cash unit-based
compensation and unit warrant expenses. Excluding these
amounts, general and administrative expenses for the three
months ended June 30, 2008, March 31, 2008 and June 30, 2007
were $0.70 per Mcfe, $0.88 per Mcfe and $1.93 per Mcfe,
respectively. The measure for the six months ended June 30,
2008 and 2007 includes approximately $7.4 million and $7.5
million, respectively, of non-cash unit-based compensation and
unit warrant expenses. Excluding these amounts, general and
administrative expenses for the six months ended June 30, 2008
and 2007 were $0.79 per Mcfe and $1.98 per Mcfe, respectively.
This is a non-GAAP measure used by Company management to analyze
its performance.
Schedule 5
Linn Energy, LLC
Selected Balance Sheet Data
June 30, December 31,
2008 2007
----------- -----------
(in thousands)
Assets
Total current assets $ 296,148 $ 183,159
Oil and gas properties and related
equipment, net 3,615,908 3,491,476
Property and equipment, net 17,811 32,024
Other assets 87,088 101,044
Noncurrent assets held for sale 557,472 --
----------- -----------
Total assets $ 4,574,427 $ 3,807,703
=========== ===========
Liabilities and Unitholders' Capital
Total current liabilities $ 626,441 $ 242,727
Credit facility 1,826,000 1,443,000
Term loan 156,398 --
Senior notes, net 250,000 --
Other noncurrent liabilities 767,490 95,335
Noncurrent liabilities held for sale 8,020 --
----------- -----------
Total liabilities 3,634,349 1,781,062
Unitholders' capital 940,078 2,026,641
----------- -----------
Total liabilities and unitholders' capital $ 4,574,427 $ 3,807,703
=========== ===========
Schedule 6
Linn Energy, LLC
Selected Cash Flow Data
Six Months Ended
June 30,
----------------------
2008 2007
---------- ----------
(in thousands)
Net cash provided by (used in) operating
activities(1)(2) $ 60,583 $ (19,387)
Net cash used in investing activities (672,883) (587,334)
Net cash provided by financing activities 620,471 601,084
---------- ----------
Net increase (decrease) in cash 8,171 (5,637)
Cash and cash equivalents:
Beginning 1,441 6,595
---------- ----------
Ending $ 9,612 $ 958
========== ==========
(1) The six months ended June 30, 2008 and 2007 includes premiums
paid for derivatives of approximately $1.3 million and $53.0
million, respectively.
(2) The six months ended June 30, 2008 includes a realized loss of
approximately $68.2 million associated with the Company's
cancellation (before the contract settlement date) of derivative
contracts on estimated future gas production primarily
associated with properties in the Appalachian Basin.
Schedule 7
Linn Energy, LLC
Guidance Table (Continuing Operations)
Q3 2008E Q4 2008E FY 2008E(1)
----------------- ----------------- -------------------
Net Production
and Other
Revenues:
Gas (MMcf/d) 137 - 142 136 - 142 131 - 135
Oil (Bbls/d) 9,190 - 9,530 9,360 - 9,790 8,920 - 9,110
NGL (Bbls/d) 3,930 - 4,080 4,320 - 4,520 4,680 - 4,780
Total
(MMcfe/d) 216 - 224 218 - 228 213 - 218
Other
revenues,
net (in
thousands)
(2) $ 750 - $ 1,000 $ 750 - $ 1,000 $ 3,000 - $ 4,000
Costs (in
thousands):
LOE and
other(3) $27,250 - $31,250 $28,000 - $32,000 $110,000 - $114,000
Production
and ad
valorem
taxes 16,500 - 18,500 15,500 - 17,500 62,000 - 66,000
------- ------- ------- ------- -------- --------
Total
operating
expenses $43,750 - $49,750 $43,500 - $49,500 $172,000 - $180,000
======= ======= ======= ======= ======== ========
General and
administrative
expenses -
non-GAAP(4) $14,000 - $16,000 $15,000 - $17,000 $ 59,000 - $ 63,000
Depreciation,
depletion and
amortiza-
tion $52,000 - $54,000 $52,500 - $55,000 $199,000 - $203,000
Costs per Mcfe
(Mid-Point):
LOE and
other(3) $ 1.45 $ 1.46 $ 1.42
Production
and ad
valorem
taxes 0.87 0.80 0.81
--------- --------- ---------
Total
operating
expenses $ 2.32 $ 2.26 $ 2.23
========= ========= =========
General and
administrative
expenses -
non-GAAP(4) $ 0.74 $ 0.78 $ 0.77
Depreciation,
depletion and
amortiza-
tion $ 2.62 $ 2.62 $ 2.55
Targets
(Mid-Point)
(in thousands):
Adjusted
EBITDA(5) $ 131,500 $ 136,500 $ 557,500
Interest
expense,
cash(6) (24,500) (24,500) (96,500)
Maintenance
capital
expenditures (24,000) (25,000) (92,250)
--------- --------- ---------
Distributable
cash flow
$ 83,000 $ 87,000 $ 368,750
========= ========= =========
Distributable
cash flow
per unit(7) $ 0.72 $ 0.76 $ 3.21
Distribution
per unit
(7)(8) $ 0.63 $ 0.63 $ 2.52
Distribution
coverage
ratio (7)(8) 1.15x 1.20x 1.27x
Weighted
Average NYMEX
Differentials:
Gas
(MMBtu)(9) $ (1.40) - $(1.00) $ (1.35)- $(0.95) $ (1.35) - $ (0.95)
Oil(Bbl) $(10.00) - $(8.00) $(10.00)- $(8.00) $(10.00) - $ (7.00)
NGL
realization
on crude
oil price(%) 60% - 65% 60% - 65% 65%
Unhedged Commodity Price Q3 Q4
Assumptions: July August September Average Average
-------- -------- --------- ------- -------
Gas (MMBtu) $ 13.11 $ 9.22 $ 9.00 $ 10.44 $ 9.00
Oil (Bbl) $ 133.48 $ 120.00 $ 120.00 $ 124.49 $120.00
Notes to Guidance Table:
(1) For accounting reporting requirements, Linn Energy will present
Appalachian Basin operations in discontinued operations for the
entire fiscal year 2008. Accordingly, guidance for FY 2008E
excludes first quarter results from the Appalachian Basin and
reflects the Company's historical and projected results on a
continuing operations basis. The following items for FY 2008E
guidance have been adjusted to remove effects of Appalachian
Basin operations for the full year: production, other revenues,
operating expenses, general and administrative expenses,
adjusted EBITDA, interest expense, maintenance capital
expenditures, distributable cash flow and commodity pricing
differentials.
(2) Includes other revenues and margin on natural gas marketing
activities.
(3) Includes accretion of asset retirement obligation, which
represents a non-cash charge.
(4) Excludes unit-based compensation, which represents a non-cash
charge based on equity-related compensation.
(5) Includes effects of the Company's hedge positions, cash flow
adjustments from acquisition and divestiture activities and
other expenses. Guidance includes cash losses on interest rate
hedges of approximately $2 million in Q3 and Q4 2008E and
approximately $10 million in FY 2008E. Guidance for Q3 2008E
has also been adjusted for the pending Verden sale, which is
expected to close during the quarter, to reflect a reduction of
approximately $5.3 million.
(6) Includes accrued interest expense on the Company's outstanding
senior notes.
(7) Assumes 115 million units outstanding.
(8) Based on current quarterly distribution of $0.63 per unit, or
$2.52 per unit on an annualized basis.
(9) Includes effects of basis swaps associated with gas production
in the Mid-Continent.
Schedule 8
Linn Energy, LLC
Guidance Table - Commodity Hedge Summary
Q3 2008E Q4 2008E FY 2008E
---------- ---------- ----------
Gas Positions:
Fixed Price Swaps:
Hedged Volume (MMMBtu) 10,176 9,936 38,256
Average Price ($/MMBtu) $ 8.67 $ 8.68 $ 8.61
Puts:
Hedged Volume (MMMBtu) 1,766 1,766 8,621
Average Price ($/MMBtu) $ 8.07 $ 8.07 $ 8.20
PEPL Puts:(1)
Hedged Volume (MMMBtu) 964 964 3,854
Average Price ($/MMBtu) $ 7.85 $ 7.85 $ 7.85
Total:
Hedged Volume (MMMBtu) 12,906 12,666 50,731
Average Price ($/MMBtu) $ 8.53 $ 8.53 $ 8.48
Oil Positions:
Fixed Price Swaps:
Hedged Volume (MBbls) 688 688 2,621
Average Price ($/Bbl) $ 82.11 $ 82.11 $ 81.49
Puts:(2)
Hedged Volume (MBbls) 467 467 1,826
Average Price ($/Bbl) $ 73.34 $ 73.34 $ 72.90
Total:
Hedged Volume (MBbls) 1,155 1,155 4,447
Average Price ($/Bbl) $ 78.57 $ 78.57 $ 77.96
Gas Basis Differential Positions:
PEPL Basis Swaps:(3)
Hedged Volume (MMMBtu) 9,037 9,037 36,146
Hedged Differential ($/MMBtu) $ (0.95) $ (0.95) $ (0.95)
Notes to Hedge Summary:
Includes positions covering production for all months within periods
specified.
(1) Settle on the PEPL spot price of gas to hedge basis differential
associated with gas production in the Mid-Continent region.
(2) The Company uses oil puts to hedge oil production and NGL
revenues.
(3) Represents a swap of the basis between NYMEX and the PEPL spot
price of gas of $(0.95) per MMBtu for the volumes hedged.
Schedule 9
Linn Energy, LLC
Commodity Hedge Portfolio
The following table shows the Company's annual commodity derivative
positions, at August 1, 2008, for each of the years ending
December 31, 2008 through December 31, 2014.
Year Year Year Year Year Year Year
2008 2009 2010 2011 2012 2013 2014
------- ------- ------- ------- ------- ------ ------
Gas
Positions:
Fixed Price
Swaps:
Hedged
Volume
(MMMBtu) 38,256 39,586 39,566 31,901 29,662 -- --
Average
Price
($/MMBtu) $ 8.61 $ 8.53 $ 8.20 $ 8.27 $ 8.46 $ -- $ --
Puts:
Hedged
Volume
(MMMBtu) 8,621 6,960 6,960 6,960 -- -- --
Average
Price
($/MMBtu)$ 8.20 $ 7.50 $ 7.50 $ 7.50 $ -- $ -- $ --
PEPL
Puts:(1)
Hedged
Volume
(MMMBtu) 3,854 5,334 10,634 13,259 5,934 -- --
Average
Price
($/MMBtu) $ 7.85 $ 7.85 $ 7.85 $ 7.85 $ 7.85 $ -- $ --
Total:
Hedged
Volume
(MMMBtu) 50,731 51,880 57,160 52,120 35,596 -- --
Average
Price
($/MMBtu) $ 8.48 $ 8.32 $ 8.05 $ 8.06 $ 8.36 $ -- $ --
Oil
Positions:
Fixed Price
Swaps:
Hedged
Volume
(MBbls) 2,621 2,437 2,150 2,073 2,025 2,275 2,200
Average
Price
($/Bbl) $ 81.49 $ 90.00 $ 90.00 $ 84.22 $ 84.22 $84.22 $84.22
Puts:(2)
Hedged
Volume
(MBbls) 1,826 1,843 2,250 2,352 500 -- --
Average
Price
($/Bbl) $ 72.90 $120.00 $110.00 $ 69.11 $ 77.73 $ -- $ --
Collars:
Hedged
Volume
(MBbls) -- 250 250 276 348 -- --
Average
Floor
Price
($/Bbl) $ -- $ 90.00 $ 90.00 $ 90.00 $ 90.00 $ -- $ --
Average
Ceiling
Price
($/Bbl) $ -- $114.25 $112.00 $112.25 $112.35 $ -- $ --
Total:
Hedged
Volume
(MBbls) 4,447 4,530 4,650 4,701 2,873 2,275 2,200
Average
Price
($/Bbl) $ 77.96 $102.21 $ 99.68 $ 77.00 $ 83.79 $84.22 $84.22
Gas Basis
Differential
Positions:
PEPL Basis
Swaps:(3)
Hedged
Volume
(MMMBtu) 36,146 34,666 29,366 26,741 34,066 -- --
Hedged
Differential
($/MMBtu) $ (0.95) $ (0.95) $ (0.95) $ (0.95) $ (0.95) $ -- $ --
Notes to Hedge Portfolio:
(1) Settle on the PEPL spot price of gas to hedge basis differential
associated with gas production in the Mid-Continent region.
(2) The Company uses oil puts to hedge oil production and NGL
revenues.
(3) Represents a swap of the basis between NYMEX and the PEPL spot
price of gas of $(0.95) per MMBtu for the volumes hedged.
Schedule 10
Linn Energy, LLC
Summary Historical and Projected 2008 Quarterly Results
(Continuing Operations)
Projected
Historical (Guidance Mid-Points)
------------------ ----------------------------
FY
Q1(1) Q2(1) Q3E Q4E 2008E(1)
-------- -------- -------- -------- --------
Net Production and
Other Revenues:
Gas (MMcf/d) 122 131 140 139 133
Oil (Bbls/d) 7,815 9,340 9,360 9,575 9,015
NGL (Bbls/d) 4,365 6,155 4,005 4,420 4,730
Total (MMcfe/d) 196 224 220 223 215
Other revenues, net
(in thousands)(2) $ 878 $ 975 $ 875 $ 875 $ 3,500
Costs (in
thousands):
LOE and other(3) $ 23,299 $ 29,321 $ 29,250 $ 30,000 $112,000
Production and ad
valorem taxes 12,822 17,320 17,500 16,500 64,000
-------- -------- -------- -------- --------
Total operating
expenses $ 36,121 $ 46,641 $ 46,750 $ 46,500 $176,000
======== ======== ======== ======== ========
General and
administrative
expenses -
non-GAAP(4) $ 15,646 $ 14,324 $ 15,000 $ 16,000 $ 61,000
Depreciation,
depletion and
amortization $ 44,081 $ 50,402 $ 53,000 $ 53,750 $201,000
Costs per Mcfe:
LOE and other(3) $ 1.31 $ 1.44 $ 1.45 $ 1.46 $ 1.42
Production and ad
valorem taxes 0.72 0.85 0.87 0.80 0.81
-------- -------- -------- -------- --------
Total operating
expenses $ 2.03 $ 2.29 $ 2.32 $ 2.26 $ 2.23
======== ======== ======== ======== ========
General and
administrative
expenses -
non-GAAP(4) $ 0.88 $ 0.70 $ 0.74 $ 0.78 $ 0.77
Depreciation,
depletion and
amortization $ 2.48 $ 2.48 $ 2.62 $ 2.62 $ 2.55
Targets (in
thousands):
Adjusted EBITDA(5) $127,323 $162,082 $131,500 $136,500 $557,500
Interest expense,
cash(6) (23,354) (24,054) (24,500) (24,500) (96,500)
Maintenance capital
expenditures (19,250) (24,000) (24,000) (25,000) (92,250)
-------- -------- -------- -------- --------
Distributable cash
flow $ 84,719 $114,028 $ 83,000 $ 87,000 $368,750
======== ======== ======== ======== ========
Distributable cash
flow per unit(7) $ 0.74 $ 0.99 $ 0.72 $ 0.76 $ 3.21
Distribution per
unit(7)(8) $ 0.63 $ 0.63 $ 0.63 $ 0.63 $ 2.52
Distribution
coverage
ratio(7)(8) 1.17x 1.57x 1.15x 1.20x 1.27x
Notes to Quarterly Summary:
(1) For accounting reporting requirements, Linn Energy will present
Appalachian Basin operations in discontinued operations for the
entire fiscal year 2008. Accordingly, guidance for FY 2008E
excludes first quarter results from the Appalachian Basin and
reflects the Company's historical and projected results on a
continuing operations basis. The following items for FY 2008E
guidance have been adjusted to remove effects of Appalachian
Basin operations for the full year: production, other revenues,
operating expenses, general and administrative expenses,
adjusted EBITDA, interest expense, maintenance capital
expenditures, distributable cash flow and commodity pricing
differentials.
(2) Includes other revenues and margin on natural gas marketing
activities.
(3) Includes accretion of asset retirement obligation, which
represents a non-cash charge.
(4) Excludes unit-based compensation, which represents a non-cash
charge based on equity-related compensation. Such expenses were
approximately $3.8 million and $3.6 million for the three months
ended June 30 and March 31, 2008, respectively.
(5) Includes effects of the Company's hedge positions, cash flow
adjustments from acquisition and divestiture activities and
other expenses. Guidance includes cash losses on interest rate
hedges of approximately $2 million in Q3 and Q4 2008E and
approximately $10 million in FY 2008E. Guidance for Q3 2008E
has also been adjusted for the pending Verden sale, which is
expected to close during the quarter, to reflect a reduction of
approximately $5.3 million.
(6) Represents cash interest expense for historical periods and
includes accrued interest expense on the Company's outstanding
senior notes for future periods.
(7) Assumes 115 million units outstanding.
(8) Based on current quarterly distribution of $0.63 per unit, or
$2.52 per unit on an annualized basis.