LINN Energy, LLC (LINE) continues to pay a huge distribution to shareholders of 11.20% as it also recently expanded its oil and gas properties with a play into the Permian Basin. The company recently surprised on the Zacks Consensus Estimate for the second quarter in a row.
Company Description
LINN Energy is an independent oil and gas company with properties in the Mid-Continent and California. On Aug 6, the company announced it had acquired properties in the Permian Basin in West Texas and New Mexico for $118 million, which would be financed through its credit facility.
At the end of December 2008, 51% of its reserves were in gas, 31% were in oil and 18% were natural gas liquids (NGL).
The company seeks to maximize cash flow for its unit holders.
LINN Energy Surprised by 9.76% in the Second Quarter
On Aug 6, LINN Energy reported second quarter results that surprised on the Zacks Consensus Estimate by 4 cents, or 9.76%. Earnings per unit were 45 cents compared to the Zacks Consensus Estimate of 41 cents. This was lower than the 70 cents per unit in the year ago period.
However, production at the six month period rose to 219 million cubic feet of natural gas equivalent per day (MMcfe/d) compared to the prior forecast of 215 MMcfe/d.
The company using hedging to reduce cash flow volatility. This hurt in the second quarter as increased commodity prices led to a $233 million loss on natural gas and oil hedges.
Looking forward, the LINN Energy is approximately 100% hedged for 2009, 2010 and 2011. In 2009, it is hedged at weighted average prices of $102.21 per barrel and $8.32 per thousand cubic feet of natural gas (Mcf).
Operationally, low natural gas prices led the company to shut-in approximately 5 MMcfe/d of Mid-Continent production. It operated 2 drilling rigs and drilled 19 wells in the second quarter which was down from 3 drilling rigs and 41 wells in the first quarter of 2009. The company anticipates reduced drilling activities for the balance of the year.
Unit Holders Pulling in a Big Yield
LINN Energy continues to pay a quarterly cash distribution. The second quarter distribution was 63 cents per unit, or $2.52 per unit on an annualized basis. This is a yield of 11.20%. It was payable on Aug 14 to unit holders of record as of Aug 7.
2009 Zacks Consensus Estimate Rises
The third quarter Zacks Consensus Estimate has been holding for the 30 days at 41 cents per unit. However, the analysts are more bullish on the full year.
The 2009 Zacks Consensus Estimate rose 8% to $1.87 from $1.73 per unit in the last 30 days as 1 analyst raised and 1 lowered out of 4 analysts during that period.
Value Fundamentals
LINN Energy is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 12.08 and a price-to-book of 1.06.
