Linn Unloose Energy Per Flowing Barrel

H5N1 fairly criterion oil-and-gas valuation metric is the toll per flowing barrel for oil too gas.

Oil at $100,000 per daily flowing barrel is considered high destination - simply closed to transactions travel on at higher prices when at that topographic point are further development opportunities inwards the plain too the oil is light, sugariness crude.

Flowing gas (per BTU) is typically worth close one-half flowing oil. [Use a conversion that half-dozen Mcf of gas is equivalent to close 1 barrel of oil]. So lets telephone telephone this $50,000 per flowing barrel equivalent.

Natural gas liquids merchandise at close one-half the toll of oil - too then a flowing barrel should live worth close one-half a flowing barrel of oil. Also lets telephone telephone this $50,000 per flowing barrel equivalent.

These are fairly criterion metrics too whatever oil too gas analyst should live able to confirm that I am non rigging the numbers here.

Linn Energy per flowing barrel

Here - from the last flat 10-Q is the average daily production of Linn Energy for the concluding quarter past times dissimilar types of hydrocarbon:

	Three Months Ended September 30,
	2012				2011				Variance
Average daily production:
Natural gas (MMcf/d)	409				170				141	%
Oil (MBbls/d)	30.8				22.6				36	%
NGL (MBbls/d)	31.4				12.2				157	%
Total (MMcfe/d)	782				379				106	%

The growth is non driven past times plain evolution simply past times buying almost $2.5 billion inwards novel assets.


Using the metrics above:

• The gas production is worth 409,000*$50,000/6 = $3.41 billion. 
• The oil production is worth 30,800*$100,000 = 3.08 billion and
• The NGL production is worth 31,400*$50,000= 1.59 billion

The amount valuation of the hydrocarbons is so 8.08 billion equally per the flows inwards the concluding 10-Q.

The concluding 10-Q likewise showed LINN equally having debt of $6.84 billion inwards debt. So the equity would live worth 1.24 billion.

There were 199 1000000 units outstanding equally per the concluding 10Q. This gives an equity valuation of $6.22 per unit of measurement - a fair chip lower than the electrical flow toll of $36.65 per unit. Longs tin hold off an eighty per centum loss on their units using these valuations.

My sentiment is that Linn Energy's gas too oil fields are pretty clapped out - too worth considerably less than the higher upwards metrics. The average good flows close half-dozen barrels per day! [My personal view: the debt volition live impaired.]

However fifty-fifty at a amount toll this MLP is worth nether $7 per unit.

To live fair though - this companionship has purchased a lot of in-the-money options too its choice seat is valuable. The value of those is close $900 1000000 - which is almost $4 to a greater extent than per unit.

To instruct anything similar the toll targets of the bullish analysts are putting on it you lot take away to mean value these clapped out assets are worth $200,000 per flowing barrel.

I know, I know you lot object: MLPs are non valued on their underlying assets. They are valued on their yield.

And they are. Until the yield stops.




John