Friday, February 6, 2015

Linn Energy Fails To Make The Bold Decision

This article was first published by Seeking Alpha on January 20, 2015

By Sarfaraz A. Khan. Research Asst. Mohsin Khan

Several companies and MLPs operating in the energy space, such as Seadrill (NYSE:SDRL), Civeo (NYSE:CVEO) and Breitburn Energy (NASDAQ:BBEP), have been clamping down on their capital budgets as well as dividends and distributions in the wake of plunging oil prices. Linn Energy (NASDAQ:LINE), the biggest oil and gas producer that is structured like a MLP, has also slashed its dividends and capital expenditure plans. The news, however, is hardly surprising as Mr. Market has been warning about the impact of low oil prices on Linn's distributions for the last few months. 

Linn Energy has grown its distribution from $2.52 a piece in 2009 to $2.90 a piece in 2014. The company has now reduced this by 56% to $1.25 a piece for 2015. Coupled with this is the 53% decrease in the oil and natural gas capital budget to $730 million, from approximately $1.55 billion announced for 2014.

Explaining the reasons behind the cuts, the company's CEO Mark Ellis said that the decision has been taken due to the lower current crude oil prices. Oil prices have fallen by over 50% over the last six months, while the decline in natural gas prices due to the warm weather exacerbated the conditions. Linn Energy also has significant exposure to natural gas liquids, or NGLs, that represented around 11% of the company's total revenues from commodity sales in the previous quarter. The NGL prices have also fallen significantly, with the price of a mixed NGL barrel plummeting by 40% since …. Read full article at Seeking Alpha