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Will Soaring Oil Prices Save Linn Energy?


Despite all of the problems with Linn right now, one thing can solve its problems; rising energy prices.

Recently, the price of crude and natural gas has increased substantially and it's having a big impact on the company's future cash flow.

Will this save Linn or is it too late for the company at this point?

One of the hardest-hit energy companies that has not declared bankruptcy (at least yet) has been Linn Energy (NASDAQ:LINE) / LinnCo (NASDAQ:LNCO), an MLP (Master Limited Partnership) that has a great deal of debt outstanding but who also has enough hedges to stay cash flow positive for a while. With shares of the company trading near their all-time low (the Linn units are going for $0.36 compared to their low of $0.26 while the LinnCo units can be purchased for $0.43, up from $0.14 at one point), it may seem that the end is nearing but is it possible that the recent surge in oil prices will breath new life into the enterprise?

A recap on Linn's financing situation

In the last article where I focused on Linn, I talked about the fact that management had reached a temporary agreement with its credit facility lenders whereby they would have until at least May 11th before certain events could be classified as a default under its amended facilities. As part of the deal, the company made payments toward its Senior Notes that were in a state of default already (but while Linn was within its 30-day grace period) but it also elected to enter into another 30-day grace period on other debt instruments, likely as a way to try and play hardball with its credit facility lenders.

My objective of this article is not to go through, in detail, these topics since I have already done so previously and I would highly recommend that any interested parties check out that article, which is linked up above. However, it should be mentioned that I do believe management is taking this proactive approach in an attempt to push its lenders to grant a more favorable credit facility redetermination so that Linn can have until this Fall to restructure its balance sheet and to wait for lower energy prices while trying hard to bring costs down in as many areas as possible.

What Linn looks like now that prices are rising

Without any doubt, Linn is in a state of emergency at the moment and...