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A Look At E&P Break-Even Points

Summary

With energy prices hammering E&P operators, I decided that it might be a good idea to look at how Linn and some of its peers look side-by-side.

In this analysis, I concluded that the breakeven point for each entity varies widely, with Linn being the high-cost producer and Memorial Production being the lowest.

This should give investors a pretty good idea of the worst these companies can handle in each of the next four years from a price standpoint.

In the past, I've written articles on Linn Energy (NASDAQ:LINE) / LinnCo (NASDAQ:LNCO), Breitburn Energy Partners (NASDAQ:BBEP), Mid-Con Energy (NASDAQ:MCEP), and Memorial Production Partners (NASDAQ:MEMP) in an attempt to figure out whether or not they made for sensible investment prospects. However, I never did conduct an analysis to see what the break-even for each of these companies is from a cash flow perspective so I figured that now might be an appropriate time to do just that. In what follows, I used the most recently-available guidance data provided by the management teams at each of these four businesses to look at their break-even points for each year between 2016 and 2019.

Disclosure

The analysis included in this piece relating each individual company is not meant to imply that any one entity can or will survive under the breakeven prices discovered. Given credit facility redeterminations, loan covenants, etc..., it's possible that matters could get very bad for each business in question if the breakeven target for oil is met or even exceeded. For a better understanding of my thoughts on these companies, please look at my most recent pieces on Linn, Breitburn, Mid-Con, and Memorial Production Partners.

Linn Energy

In the table below, you can see what the situation looks like for Linn from a breakeven standpoint over the next four years under three different scenarios; one where natural gas averages $2.00 per Mcf, one where it averages $2.50 per Mcf, and another where natural gas averages $3.00 per Mcf. Although natural gas could average above or below these levels, I feel this is probably a realistic expectation for the next few years.

According to my analysis, it appears as though it doesn't really matter what oil prices average on a per-barrel basis this year but, in order for the company to...


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