Fresh from completing a semi-annual borrowing base redetermination, and with an eye on its liquidity, Linn Energy LLC reported a slight decline in total production for the third quarter and indicated that it could spend slightly less on capital expenditures (capex) in 2016.
The Houston-based company reported a net loss of $1.57 billion (minus $4.47/unit) for the third quarter of 2015, due in large part to an impairment charge of about $2.26 billion. By comparison, the company had a net loss of $4.1 million (minus 2 cents/unit) in 3Q2014. Revenue from commodity sales dropped 54.4% between the two quarters, from $937.5 to $427.2 million. The company cited a decline in commodity prices and its estimate of proved reserves for the impairment charge.
On Oct. 21, Linn completed a redetermination with undrawn capacity of approximately $790 million as of Sept. 30, proforma for the redetermination. Through Sept. 30, the company has repurchased approximately $783 million of outstanding senior unsecured bonds for approximately $557 million in cash.
Linn purchased Berry Petroleum Co. for $4.9 billion in 2013 (see Shale Daily, Feb. 22, 2013). Following the redetermination, Linn's maximum borrowing availability under its credit facility was reduced to $3.6 billion, and Berry's was reduced to $900 million. Linn said its lenders have approved a potential combination of the two credit facilities, to a combined $4.05 billion, under certain conditions.
"We are very mindful of our liquidity position," CAO David Rottino said during an earnings call to discuss 3Q2015 on Nov. 5. "We've asked the banks for, and received permission to do, debt exchanges and potentially combine Berry and Linn. We have that option in front of us.
"At the end of the day, it's an economic decision as well as a need for incremental liquidity. It's not something that we have to have right now, but we have the flexibility to raise it, if and when it makes economic sense for us."
Linn reported a 3.8% decline in total production, from about 1.25 Bcfe/d in 3Q2014 to about 1.2 Bcfe/d in 3Q2015. Although natural gas production increased 7.3% during the two quarters (from 600 to 644 MMcf/d), oil production tumbled 14.7% (from 74,000 to 63,100 b/d) and natural gas liquids (NGL) was down 12.8% (from 33,500 to 29,200 b/d). Linn met its 3Q2015 production guidance for natural gas, NGL and total production, but beat its guidance (60,000-63,000 b/d) for oil.
The company also beat its guidance ($276,000-307,000) for total operating expenses for 3Q2015, coming in at $254,071. Linn is currently running two rigs: one in California, the other on a six-well program in the Jonah Field.
"We are encouraged by the significant amount of industry activity in the Tuttle area, located in the SCOOP [South Central Oklahoma Oil Province] and STACK [Sooner Trend Anadarko Canadian and Kingfisher] plays in Oklahoma, and believe this should help de-risk our acreage position," CEO Mark Ellis said. "We are continuing to evaluate opportunities in development areas such as these, which could add significant future value."
Production guidance for 4Q2015 is expected to average 1.1-1.2 Bcfe/d, and for the full year 2015 is about 1.2 Bcf/d (specifically, from 1,185-1,205 MMcfe/d). Ellis said the decline in production for 4Q2015 is expected due to the recent sale of the company's remaining acreage in the Wolfcamp formation (see Shale Daily, July 6), plus a reduction in non-operated activity in the Williston Basin and the Jonah Field. Linn cited the latter for reducing its capex budget for the full year 2015, bringing it down from $530 million to $470 million.
Ellis said the company will unveil its capex budget for 2016 in December, and that it will probably be "a little less" than $470 million.
Linn's assets include positions in South Texas, the TexLa region (East Texas, North Louisiana), the Midcontinent, and the Permian and Houghton basins. It also holds acreage in Wyoming prospective for the Green River, Washakie and Powder River basins; northeast Utah (Uinta Basin); North Dakota (Bakken Shale and Three Forks Formation, in the Williston Basin); and northwest Colorado (Piceance Basin).
Although asset sales have taken place recently in the Terryville Complex -- located in the Cotton Valley Sands Formation, in North Louisiana -- COO Arden Walker said Linn would prefer to de-risk the approximately 10,000 acres it holds there before attempting to monetize them.
"Earlier in the year we drilled a vertical well in our western [Terryville] acreage," Walker said. "It basically confirmed the presence of reservoir and pressure that we wanted to see there. We'll be drilling a horizontal well there at the end of this year."
Linn is hedged about 100% on expected gas production through 2017, at average prices of $4.48-$5.12/MMBtu. It does not currently hedge the portion of natural gas production related to heavy oil operations in California. For expected oil production, Linn is hedged about 90% for the remainder of 2015 and about 70% in 2016.