Investors guide to line lnco


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For a number of reasons LINN Energy (NASDAQ: LINE), and by association its affiliate LinnCo (NASDAQ: LNCO) have become a battleground investment. Many investors love the super high yielding distributions the pair pays monthly. Others worry that those payouts could come to an end. Finally, there are some that just don't think LINN Energy is worth owning anymore.

On top of that investors have similar choices when it comes to high yielding oil and gas MLPs. BreitBurn Energy Partners' (NASDAQ: BBEP) distribution yield is about the same as LINN Energy. However, BreitBurn produces more oil as a percentage of its production, and as a smaller company it could offer more upside. On the other hand, Vanguard Natural Resources (NASDAQ: VNR) offers a lower yield, but it has massive upside to natural gas. Because of this investors have a choice when it comes to massive energy dividends.

That's why it is important for investors to cut through all the noise and really understand what an investment in LINN Energy or LinnCo represents. The following slideshow is meant to help investors better understand what LINN Energy actually owns, how it makes its money, where it's different from BreitBurn and Vanguard as well as what its future might hold. Only then can investors judge if the 10% yield of LINN Energy or LinnCo is worth adding or keeping in their portfolio.

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Investors guide to line lnco

  1. 1. An Investor's Guide to LINN Energy and LinnCo Photo credits: LINN Energy LLC
  2. 2. LINN Energy 101 • Founded in 2003 by Michael Linn. • Went public in 2006 raising $261 million. • LINN was the first of a new wave of exploration and production MLPs to go public. • Company has grown from a handful of natural gas wells to a top-15 exploration and production company. • Created LinnCo to serve as a growth vehicle.
  3. 3. LINN Energy vs. LinnCo • LINN Energy took LinnCo public in 2012. • LinnCo’s sole purpose is to own units of LINN Energy. • Owns no operating assets. • 1 LinnCo share = 1 vote of LINN Energy unit. • LinnCo is a vehicle that LINN can use to acquire other public or private C-Corps (ex. Berry Petroleum). LinnCo 101
  4. 4. LINN Energy vs. LinnCo
  5. 5. LINN Energy vs. LinnCo • Benefits of LinnCo – No Schedule K-1 – No UBTI implications – Corporate taxes at LinnCo estimated at zero through 2018 – Better in an IRA than LINN Energy • Drawbacks of LinnCo – No assets other than units of LINN Energy – Corporate taxes after 2018 will be a drag on dividend growth LinnCo 101
  6. 6. LINN Energy 101
  7. 7. LINN Energy 101 • Acquire mature oil and gas assets. • Invest minimally to keep production roughly flat. • Hedge virtually all of the production to lock in margins. Core Business Model
  8. 8. LINN Energy 101 • Virtually all of LINN’s excess cash flow is distributed back to investors. • Model yields as stable and growing income stream for investors. Core Business Model
  9. 9. LINN Energy 101
  10. 10. LINN Energy 101 • LINN Energy and peers like BreitBurn Energy Partners and Vanguard Natural Resources are in a MLP like structure. • Key to that structure is balanced and secure revenue stream. • Yields predictable income stream. Core Business Model vs. peers
  11. 11. LINN Energy Core Business vs. Peers
  12. 12. LINN Energy Core Business vs. Peers
  13. 13. LINN Energy Core Business vs. Peers
  14. 14. LINN Energy Core Business vs. Peers • LINN Energy’s production is balanced while Breitburn is heavier into oil and Vanguard is gas heavy. • LINN’s oil production isn’t 100% hedged as it’s still digesting the oil-rich Berry acquisition. • LINN’s natural gas production is 100% hedged. • Overall combination yields better income stability. Key takeaways vs. peers
  15. 15. LINN Energy Upsides • Last year LINN grew production by 11% (including acquisitions) • In 2014 LINN is expected to grow production 3%-4%. • Organic growth opportunities abound in LINN’s portfolio. Organic growth
  16. 16. LINN Energy Upsides • 55,000 net acres prospective for horizontal Wolfcamp • 1,000+ well locations • Currently exploring strategic options for acreage. Midland Basin
  17. 17. LINN Energy Upsides Options: 1. Develop internally or JV. 2. Trade assets for long- life, mature properties. 3. Sell assets and eventually replace assets via a “like-kind- exchange.” Midland Basin
  18. 18. LINN Energy Upsides • $20-$30 billion in mature assets expected to hit the market. • Shale focused drillers continue to shed mature production. • Slow growth C-Corps (both public and private) could sell to LinnCo as an exit strategy. Acquisitions
  19. 19. LINN Energy Key Takeaways • Production now more oil/liquids focused. • Ample upside from organic and acquired opportunities. • Distribution stable and very likely to grow over the long-term. Stable core with upside
  20. 20. Our special report "The IRS Is Daring You To Make This Energy Investment."