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.
