After oil’s plunge stole more than half its market value in a month, Linn Energy LLC (NASDAQ: LINE) is following major producers in putting spending on hold and reducing debt, Bloomberg reported Dec. 16.
The oil company’s $5 billion spending spree since early 2013 made it the most indebted U.S. explorer of its size. Now it’s delaying a 2015 budget and will use proceeds from assets sold in Texas and Oklahoma to cut debt 16%, said Clay Jeansonne, vice president of investor relations.
“The volatility in commodity prices is making it more difficult to put together a budget,” Jeansonne said by phone. “We’re trying to get some clarity on oil prices to help formulate our 2015 plan.”
Linn Energy plunged to an all-time low on Dec. 15 and is worth about a third of its value when crude started declining from a June peak as concern mounts that it will struggle to meet promised investor payouts.
The Houston-based producer has the highest payout commitment to investors and the highest ratio of net debt relative to earnings before income, taxes, depreciation and amortization, or Ebitda, data compiled by Bloomberg show.
The company said on Dec. 15 it closed the sale of its holdings in the Granite Wash and Cleveland plays in Texas and Oklahoma to EnerVest Ltd. and FourPoint Energy LLC for $1.95 billion.
Expectations that the sale couldn’t go through helped push down the stock, Jeansonne said. Linn Energy will use the proceeds to cut debt to about $10 billion from $11.9 billion, he said.
Price Impact
Although the company has sold, traded and acquired new assets in an effort to lower production costs, it’s still wrestling with the impact of lower oil prices, Jeansonne said.
Linn Energy’s $3.2 billion value is less than a third that of Continental Resources Inc. (NYSE: CLR), the largest producer of oil from the Bakken Shale in North Dakota, even though it produced more than the bigger competitor in the third quarter.
West Texas Intermediate for January delivery fell to $55.91 a barrel in New York on Dec. 15, its lowest settlement since May 2009, undermining producers with debt-heavy balance sheets.
Linn Energy slumped 18% to $9.83, the lowest close since it was listed in January 2006, and rose to $10.75 after the close of regular trading on the NASDAQ exchange on Dec. 15 following the announcement that it finalized the asset sales.
The share’s recent sell-off reflects “the low-price environment and its potential impact on distribution cuts,” Adam Fackler, an analyst at MLV & Co. LLC in New York, said by telephone. “On a broader scale, this is part of the somewhat irrational selling we’ve been seeing across the board” in the energy sector.
CEO’s Vision
Investors remaining loyal to Linn Chairman and CEO Mark Ellis’s vision are looking ahead to the company’s 2015 capital spending plan “to provide some visibility that’s been lacking to this point,” Fackler said. That plan probably will be announced during the first quarter, he said.
Linn Energy has focused on what it calls long-life, high- quality properties that produce oil at relatively low, but stable rates. The strategy is focused on cash generation, although the company has expanded through debt to build its portfolio, including 62 acquisitions since it went public in 2006, Jeansonne said.
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