Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 000-51719
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12228688&doc=18
LINN ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
81-5366183
(I.R.S. Employer
Identification No.)
600 Travis
Houston, Texas
(Address of principal executive offices)
77002
(Zip Code)
(281) 840-4000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
 
 
 
Smaller reporting company
¨
 
 
Emerging growth company
¨



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  x    No  ¨
As of April 30, 2018, there were 79,038,702 shares of Class A common stock, par value $0.001 per share, outstanding.
 



TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Table of Contents

GLOSSARY OF TERMS
As commonly used in the oil and natural gas industry and as used in this Quarterly Report on Form 10-Q, the following terms have the following meanings:
Bbl. One stock tank barrel or 42 United States gallons liquid volume.
Btu. One British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees Fahrenheit.
MBbls. One thousand barrels of oil or other liquid hydrocarbons.
MBbls/d. MBbls per day.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
MMBbls. One million barrels of oil or other liquid hydrocarbons.
MMBtu. One million British thermal units.
MMcf. One million cubic feet.
MMcf/d. MMcf per day.
MMcfe. One million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
MMcfe/d. MMcfe per day.
MMMBtu. One billion British thermal units.
NGL. Natural gas liquids, which are the hydrocarbon liquids contained within natural gas.

ii

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
LINN ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2018
 
December 31,
2017
 
(in thousands, except share amounts)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
227,196

 
$
464,508

Accounts receivable – trade, net
130,527

 
140,485

Derivative instruments
7,287

 
9,629

Restricted cash
77,263

 
56,445

Other current assets
65,213

 
79,771

Assets held for sale
92,492

 
106,963

Total current assets
599,978

 
857,801

 
 
 
 
Noncurrent assets:
 
 
 
Oil and natural gas properties (successful efforts method)
778,091

 
950,083

Less accumulated depletion and amortization
(48,142
)
 
(49,619
)
 
729,949

 
900,464

 
 
 
 
Other property and equipment
533,078

 
480,729

Less accumulated depreciation
(36,326
)
 
(28,658
)
 
496,752

 
452,071

 
 
 
 
Derivative instruments
936

 
469

Deferred income taxes
162,709

 
198,417

Equity method investments
490,503

 
464,926

Other noncurrent assets
5,983

 
6,975

 
660,131

 
670,787

Total noncurrent assets
1,886,832

 
2,023,322

Total assets
$
2,486,810

 
$
2,881,123

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
264,973

 
$
253,975

Derivative instruments
16,931

 
10,103

Other accrued liabilities
38,948

 
58,617

Liabilities held for sale
42,891

 
43,302

Total current liabilities
363,743

 
365,997

 
 
 
 
Noncurrent liabilities:
 
 
 
Derivative instruments
4,682

 
2,849

Asset retirement obligations and other noncurrent liabilities
104,730

 
160,720

Total noncurrent liabilities
109,412

 
163,569

 
 
 
 
Commitments and contingencies (Note 11)


 


 
 
 
 

1

Table of Contents
LINN ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued
(Unaudited)


 
March 31,
2018
 
December 31,
2017
 
(in thousands, except share amounts)
Equity:
 
 
 
Preferred stock ($0.001 par value, 30,000,000 shares authorized; no shares issued at March 31, 2018, or December 31, 2017)

 

Class A common stock ($0.001 par value, 270,000,000 shares authorized; 76,492,933 shares and 83,582,176 shares issued at March 31, 2018, and December 31, 2017, respectively)
76

 
84

Additional paid-in capital
1,478,365

 
1,899,642

Retained earnings
502,684

 
432,860

Total common stockholders’ equity
1,981,125

 
2,332,586

Noncontrolling interests
32,530

 
18,971

Total equity
2,013,655

 
2,351,557

Total liabilities and equity
$
2,486,810

 
$
2,881,123

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
LINN ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
(in thousands, except per share and per unit amounts)
 
 
 
 
 
 
Revenues and other:
 
 
 
 
 
 
Oil, natural gas and natural gas liquids sales
$
136,876

 
$
80,325

 
 
$
188,885

Gains (losses) on oil and natural gas derivatives
(15,030
)
 
(11,959
)
 
 
92,691

Marketing revenues
46,267

 
2,914

 
 
6,636

Other revenues
5,894

 
2,028

 
 
9,915

 
174,007

 
73,308

 
 
298,127

Expenses:
 
 
 
 
 
 
Lease operating expenses
47,884

 
24,630

 
 
49,665

Transportation expenses
19,094

 
13,723

 
 
25,972

Marketing expenses
41,755

 
2,539

 
 
4,820

General and administrative expenses
44,779

 
10,411

 
 
71,745

Exploration costs
1,202

 
55

 
 
93

Depreciation, depletion and amortization
28,465

 
19,914

 
 
47,155

Taxes, other than income taxes
8,452

 
7,077

 
 
14,877

(Gains) losses on sale of assets and other, net
(106,075
)
 
484

 
 
829

 
85,556

 
78,833

 
 
215,156

Other income and (expenses):
 
 
 
 
 
 
Interest expense, net of amounts capitalized
(404
)
 
(4,200
)
 
 
(16,725
)
Earnings from equity method investments
25,345

 
39

 
 
157

Other, net
(169
)
 
(388
)
 
 
(149
)
 
24,772

 
(4,549
)
 
 
(16,717
)
Reorganization items, net
(1,951
)
 
(2,565
)
 
 
2,331,189

Income (loss) from continuing operations before income taxes
111,272

 
(12,639
)
 
 
2,397,443

Income tax expense (benefit)
40,174

 
(5,315
)
 
 
(166
)
Income (loss) from continuing operations
71,098

 
(7,324
)
 
 
2,397,609

Income (loss) from discontinued operations, net of income taxes

 
68

 
 
(548
)
Net income (loss)
71,098

 
(7,256
)
 
 
2,397,061

Net income attributable to noncontrolling interests
1,274

 

 
 

Net income (loss) attributable to common stockholders/unitholders
$
69,824

 
$
(7,256
)
 
 
$
2,397,061

 
 
 
 
 
 
 
Income (loss) per share/unit attributable to common stockholders/unitholders:
 
 
 
 
 
 
Income (loss) from continuing operations per share/unit – Basic
$
0.88

 
$
(0.08
)
 
 
$
6.80

Income (loss) from continuing operations per share/unit – Diluted
$
0.86

 
$
(0.08
)
 
 
$
6.80

 
 
 
 
 
 
 
Income (loss) from discontinued operations per share/unit – Basic
$

 
$

 
 
$
(0.01
)
Income (loss) from discontinued operations per share/unit – Diluted
$

 
$

 
 
$
(0.01
)
 
 
 
 
 
 
 
Net income (loss) per share/unit – Basic
$
0.88

 
$
(0.08
)
 
 
$
6.79

Net income (loss) per share/unit – Diluted
$
0.86

 
$
(0.08
)
 
 
$
6.79

 
 
 
 
 
 
 
Weighted average shares/units outstanding – Basic
78,975

 
89,848

 
 
352,792

Weighted average shares/units outstanding – Diluted
80,332

 
89,848

 
 
352,792

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

LINN ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
 
Class A Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Total Common Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
Shares
 
Amount
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
83,582

 
$
84

 
$
1,899,642

 
$
432,860

 
$
2,332,586

 
$
18,971

 
$
2,351,557

Net income
 
 

 

 
69,824

 
69,824

 
1,274

 
71,098

Issuances of successor Class A common stock
649

 

 

 

 

 

 

Repurchases of successor Class A common stock
(7,738
)
 
(8
)
 
(368,206
)
 

 
(368,214
)
 

 
(368,214
)
Settlement of RSUs
 
 

 
(49,234
)
 

 
(49,234
)
 

 
(49,234
)
Share-based compensation expenses
 
 

 
17,037

 

 
17,037

 

 
17,037

Allocation of noncontrolling interest upon vesting of subsidiary units
 
 

 
(21,233
)
 

 
(21,233
)
 
21,233

 

Distributions to noncontrolling interests
 
 

 

 

 

 
(8,367
)
 
(8,367
)
Subsidiary equity transactions
 
 

 
581

 

 
581

 
(581
)
 

Other
 
 

 
(222
)
 

 
(222
)
 

 
(222
)
March 31, 2018
76,493

 
$
76

 
$
1,478,365

 
$
502,684

 
$
1,981,125

 
$
32,530

 
$
2,013,655

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
LINN ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
(in thousands)
 
 
 
 
 
 
Cash flow from operating activities:
 
 
 
 
 
 
Net income (loss)
$
71,098

 
$
(7,256
)
 
 
$
2,397,061

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
(Income) loss from discontinued operations

 
(68
)
 
 
548

Depreciation, depletion and amortization
28,465

 
19,914

 
 
47,155

Deferred income taxes
40,660

 
(5,034
)
 
 
(166
)
Total (gains) losses on derivatives, net
15,030

 
11,959

 
 
(92,691
)
Cash settlements on derivatives
(4,494
)
 
5,782

 
 
(11,572
)
Share-based compensation expenses
17,037

 
4,177

 
 
50,255

Amortization and write-off of deferred financing fees
404

 
3

 
 
1,338

(Gains) losses on sale of assets and other, net
(131,330
)
 
345

 
 
1,069

Reorganization items, net

 

 
 
(2,359,364
)
Changes in assets and liabilities:
 
 
 
 
 
 
(Increase) decrease in accounts receivable – trade, net
5,415

 
26,614

 
 
(7,216
)
(Increase) decrease in other assets
14,176

 
(2,553
)
 
 
528

Increase (decrease) in accounts payable and accrued expenses
15,711

 
(43,476
)
 
 
20,949

Increase (decrease) in other liabilities
(24,362
)
 
4,187

 
 
2,801

Net cash provided by operating activities – continuing operations
47,810

 
14,594

 
 
50,695

Net cash provided by operating activities – discontinued operations

 
3,166

 
 
8,781

Net cash provided by operating activities
47,810

 
17,760

 
 
59,476

 
 
 
 
 
 
 
Cash flow from investing activities:
 
 
 
 
 
 
Development of oil and natural gas properties
(26,024
)
 
(19,779
)
 
 
(50,597
)
Purchases of other property and equipment
(46,110
)
 
(2,466
)
 
 
(7,409
)
Proceeds from sale of properties and equipment and other
232,394

 
326

 
 
(166
)
Net cash provided by (used in) investing activities – continuing operations
160,260

 
(21,919
)
 
 
(58,172
)
Net cash used in investing activities – discontinued operations

 
(465
)
 
 
(584
)
Net cash provided by (used in) investing activities
160,260

 
(22,384
)
 
 
(58,756
)

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Table of Contents
LINN ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)

 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
(in thousands)
 
 
 
 
 
 
Cash flow from financing activities:
 
 
 
 
 
 
Proceeds from rights offerings, net

 

 
 
514,069

Repurchases of shares
(367,830
)
 

 
 

Proceeds from borrowings

 
30,000

 
 

Repayments of debt

 
(96,250
)
 
 
(1,038,986
)
Payment to holders of claims under the Predecessor’s second lien notes

 

 
 
(30,000
)
Distributions to noncontrolling interests
(8,007
)
 

 
 

Cash settlements of RSUs
(48,701
)
 

 
 

Other
(26
)
 
17,658

 
 
(6,015
)
Net cash used in financing activities – continuing operations
(424,564
)
 
(48,592
)
 
 
(560,932
)
Net cash used in financing activities – discontinued operations

 

 
 

Net cash used in financing activities
(424,564
)
 
(48,592
)
 
 
(560,932
)
 
 
 
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(216,494
)
 
(53,216
)
 
 
(560,212
)
Cash, cash equivalents and restricted cash:
 
 
 
 
 
 
Beginning
520,953

 
144,022

 
 
704,234

Ending
$
304,459

 
$
90,806

 
 
$
144,022

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
When referring to Linn Energy, Inc. (“Successor,” “LINN Energy” or the “Company”), the intent is to refer to LINN Energy, a Delaware corporation formed in February 2017, and its consolidated subsidiaries as a whole or on an individual basis, depending on the context in which the statements are made. Linn Energy, Inc. is a successor issuer of Linn Energy, LLC pursuant to Rule 15d‑5 of the Securities Exchange Act of 1934, as amended. Linn Energy, Inc. is not a successor of Linn Energy, LLC for purposes of Delaware corporate law. When referring to the “Predecessor” in reference to the period prior to the emergence from bankruptcy, the intent is to refer to Linn Energy, LLC, the predecessor that will be dissolved following the effective date of the Plan (as defined in Note 2) and resolution of all outstanding claims, and its consolidated subsidiaries as a whole or on an individual basis, depending on the context in which the statements are made.
The reference to “Berry” herein refers to Berry Petroleum Company, LLC, which was an indirect 100% wholly owned subsidiary of the Predecessor through February 28, 2017. Berry was deconsolidated effective December 3, 2016. The reference to “LinnCo” herein refers to LinnCo, LLC, which was an affiliate of the Predecessor.
Nature of Business
LINN Energy is an independent oil and natural gas company that was formed in February 2017, in connection with the reorganization of the Predecessor. The Predecessor was publicly traded from January 2006 to February 2017. As discussed further in Note 2, on May 11, 2016 (the “Petition Date”), Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo (collectively, the “LINN Debtors”) and Berry (collectively with the LINN Debtors, the “Debtors”), filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16-60040. During the pendency of the Chapter 11 proceedings, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. The Company emerged from bankruptcy effective February 28, 2017.
The Company’s properties are currently located in six operating regions in the United States (“U.S.”): the Hugoton Basin, East Texas, North Louisiana, Michigan/Illinois, the Rockies and the Mid-Continent. The Company also owns a 50% equity interest in Roan Resources LLC (“Roan”), which is focused on the accelerated development of the Merge/SCOOP/STACK play in Oklahoma. During 2018, the Company divested all of its properties located in the previous Permian Basin operating region. During 2017, the Company divested all of its properties located in the previous California and South Texas operating regions.
Principles of Consolidation and Reporting
The information reported herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under Securities and Exchange Commission rules and regulations; as such, this report should be read in conjunction with the financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year.
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation. Noncontrolling interests represent ownership in the net assets of the Company’s consolidated subsidiary, Linn Energy Holdco LLC (“Holdco”), not attributable to LINN Energy, and are presented as a component of equity. Changes in the Company’s ownership interests in Holdco that do not result in deconsolidation are recognized in equity. See Note 13 for additional information about noncontrolling interests. Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method. See Note 6 for additional information about equity method investments.

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Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The condensed consolidated financial statements for previous periods include certain reclassifications that were made to conform to current presentation. The Company has also classified the results of operations and cash flows of its California properties as discontinued operations on its condensed consolidated financial statements. Such reclassifications have no impact on previously reported net income (loss) or stockholders equity. See Note 4 for additional information. As a result of the adoption of ASU 2016-18 and the inclusion of restricted cash in the statements of cash flows, previously reported net cash provided by operating activities has been updated to conform to current presentation. See recently adopted accounting standards below for additional information.
Bankruptcy Accounting
Upon emergence from bankruptcy on February 28, 2017, the Company adopted fresh start accounting which resulted in the Company becoming a new entity for financial reporting purposes. As a result of the adoption of fresh start accounting and the effects of the implementation of the Plan, the Company’s condensed consolidated financial statements subsequent to February 28, 2017, are not comparable to its condensed consolidated financial statements prior to February 28, 2017. References to “Successor” relate to the financial position and results of operations of the reorganized Company subsequent to February 28, 2017. References to “Predecessor” relate to the financial position of the Company prior to, and results of operations through and including, February 28, 2017. The Company’s condensed consolidated financial statements and related footnotes are presented with a black line division, which delineates the lack of comparability between amounts presented after February 28, 2017, and amounts presented on or prior to February 28, 2017. See Note 2 for additional information.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. The estimates that are particularly significant to the financial statements include estimates of the Company’s reserves of oil, natural gas and natural gas liquids (“NGL”), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, and fair values of commodity derivatives. In addition, as part of fresh start accounting, the Company made estimates and assumptions related to its reorganization value, liabilities subject to compromise, the fair value of assets and liabilities recorded as a result of the adoption of fresh start accounting and income taxes.
As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Any changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Recently Adopted Accounting Standards
In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that is intended to address diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The Company adopted this ASU on January 1, 2018, on a retrospective basis. The adoption of this ASU resulted in the inclusion of restricted cash in the beginning and ending balances of cash on the statements of cash flows and disclosure reconciling cash and cash equivalents presented on the balance sheets to cash, cash equivalents and restricted cash on the statement of cash flows (see Note 17).

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Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

In May 2014, the FASB issued an ASU that is intended to improve and converge the financial reporting requirements for revenue from contracts with customers (“ASC 606”). The Company adopted this ASU on January 1, 2018, using the modified retrospective transition method. Accordingly, the comparative information for the three months ended March 31, 2017, has not been adjusted and continues to be reported under the previous revenue standard. The adoption of this ASU impacted the Company’s gross revenues and expenses as reported on its condensed consolidated statements of operations (see below), and resulted in increased disclosures regarding the Company’s disaggregation of revenue (see Note 3).
Under ASC 606, the Company recognizes revenues based on a determination of when control of its commodities is transferred and whether it is acting as a principal or agent in certain transactions. All facts and circumstances of an arrangement are considered and judgment is often required in making this determination. For its natural gas contracts, the Company generally records its sales at the wellhead or inlet of the plant as revenues net of transportation, gathering and processing expenses if the processor is the customer and there is no redelivery of commodities to the Company. Conversely, the Company generally records its sales at the tailgate of the plant on a gross basis along with the associated transportation, gathering and processing expenses if the processor is a service provider and there is redelivery of commodities to the Company.
In addition, the Company recognizes revenues for commodities received as noncash consideration in exchange for services provided by its midstream operations and revenues and associated cost of product for the subsequent sale of those same commodities. This recognition results in an increase to revenues and expenses with no material impact on net income.
The items discussed above impacted the Company’s reported “oil, natural gas and natural gas liquids sales,” “marketing revenues,” “transportation expenses” and “marketing expenses.” The impact of adoption on the Company’s current period results is as follows:
 
Three Months Ended March 31, 2018
 
Under ASC 606
 
Under Prior Rule
 
Increase/ (Decrease)
 
(in thousands)
Revenues:
 
 
 
 
 
Natural gas sales
$
63,328

 
$
64,509

 
$
(1,181
)
Oil sales
45,696

 
45,696

 

NGL sales
27,852

 
27,942

 
(90
)
Total oil, natural gas and NGL sales
136,876

 
138,147

 
(1,271
)
Marketing revenues
46,267

 
28,115

 
18,152

Other revenues
5,894

 
5,673

 
221

 
189,037

 
171,935

 
17,102

Expenses:
 
 
 
 
 
Transportation expenses
19,094

 
20,365

 
(1,271
)
Marketing expenses
41,755

 
23,603

 
18,152

Net income
$
71,098

 
$
70,877

 
$
221

New Accounting Standards Issued But Not Yet Adopted
In February 2016, the FASB issued an ASU that is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. This ASU will be applied retrospectively as of the date of adoption and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years (early adoption permitted). The Company is currently evaluating the impact of the adoption of this ASU on its financial statements and related disclosures. The Company expects the adoption of this ASU to impact its balance sheets resulting from an increase in both assets and liabilities related to the Company’s leasing activities.

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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Note 2 – Emergence From Voluntary Reorganization Under Chapter 11 and Fresh Start Accounting
On the Petition Date, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16‑60040.
On December 3, 2016, the LINN Debtors filed the Amended Joint Chapter 11 Plan of Reorganization of Linn Energy, LLC and Its Debtor Affiliates Other Than Linn Acquisition Company, LLC (“LAC”) and Berry Petroleum Company, LLC (the “Plan”). The LINN Debtors subsequently filed amended versions of the Plan with the Bankruptcy Court.
On December 13, 2016, LAC and Berry filed the Amended Joint Chapter 11 Plan of Reorganization of Linn Acquisition Company, LLC and Berry Petroleum Company, LLC (the “Berry Plan” and together with the Plan, the “Plans”). LAC and Berry subsequently filed amended versions of the Berry Plan with the Bankruptcy Court.
On January 27, 2017, the Bankruptcy Court entered an order approving and confirming the Plans (the “Confirmation Order”). On February 28, 2017 (the “Effective Date”), the Debtors satisfied the conditions to effectiveness of the respective Plans, the Plans became effective in accordance with their respective terms and LINN Energy and Berry emerged from bankruptcy as stand-alone, unaffiliated entities.
Reorganization Items, Net
The Company incurred significant costs and recognized significant gains associated with the reorganization. Reorganization items represent costs and income directly associated with the Chapter 11 proceedings since the Petition Date, and also include adjustments to reflect the carrying value of certain liabilities subject to compromise at their estimated allowed claim amounts, as such adjustments were determined. The following table summarizes the components of reorganization items included on the condensed consolidated statements of operations:
 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
(in thousands)
 
 
 
 
 
 
Gain on settlement of liabilities subject to compromise
$

 
$

 
 
$
3,724,750

Recognition of an additional claim for the Predecessor’s second lien notes settlement

 

 
 
(1,000,000
)
Fresh start valuation adjustments

 

 
 
(591,525
)
Income tax benefit related to implementation of the Plan

 

 
 
264,889

Legal and other professional fees
(1,952
)
 
(2,570
)
 
 
(46,961
)
Terminated contracts

 

 
 
(6,915
)
Other
1

 
5

 
 
(13,049
)
Reorganization items, net
$
(1,951
)
 
$
(2,565
)
 
 
$
2,331,189

Fresh Start Accounting
Upon the Company’s emergence from Chapter 11 bankruptcy, it adopted fresh start accounting in accordance with the provisions of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”), which resulted in the Company becoming a new entity for financial reporting purposes. In accordance with ASC 852, the Company was required to adopt fresh start accounting upon its emergence from Chapter 11 because (i) the holders of existing voting ownership interests of the Predecessor received less than 50% of the voting shares of the Successor and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims.

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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Upon adoption of fresh start accounting, the reorganization value derived from the enterprise value as disclosed in the Plan was allocated to the Company’s assets and liabilities based on their fair values (except for deferred income taxes) in accordance with ASC 805 “Business Combinations.” The amount of deferred income taxes recorded was determined in accordance with ASC 740 “Income Taxes.” The Effective Date fair values of the Company’s assets and liabilities differed materially from their recorded values as reflected on the historical balance sheet. The effects of the Plan and the application of fresh start accounting were reflected on the condensed consolidated balance sheet as of February 28, 2017, and the related adjustments thereto were recorded on the condensed consolidated statement of operations for the two months ended February 28, 2017.
Note 3 – Revenues
Revenue from Contracts with Customers
The Company recognizes sales of oil, natural gas and NGL when it satisfies a performance obligation by transferring control of the product to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the product.
Natural Gas and NGL Sales
The Company’s natural gas production is primarily sold under market-sensitive contracts that are typically priced at a differential to the published natural gas index price for the producing area due to the natural gas quality and the proximity to major consuming markets.
For its natural gas contracts, the Company generally records its wet gas sales at the wellhead or inlet of the plant as revenues net of transportation, gathering and processing expenses, and its residual natural gas and NGL sales at the tailgate of the plant on a gross basis along with the associated transportation, gathering and processing expenses. All facts and circumstances of an arrangement are considered and judgment is often required in making this determination.
Oil Sales
The Company’s oil production is primarily sold under market-sensitive contracts that are typically priced at a differential to the New York Mercantile Exchange (“NYMEX”) price or at purchaser posted prices for the producing area. For its oil contracts, the Company generally records its sales based on the net amount received.
Production Imbalances
The Company uses the sales method to account for natural gas production imbalances. If the Company’s sales volumes for a well exceed the Company’s proportionate share of production from the well, a liability is recognized to the extent that the Company’s share of estimated remaining recoverable reserves from the well is insufficient to satisfy this imbalance. No receivables are recorded for those wells on which the Company has taken less than its proportionate share of production.
Marketing Revenues
The Company engages in the purchase, gathering and transportation of third-party natural gas and subsequently markets such natural gas to independent purchasers under separate arrangements. As such, the Company separately reports third-party marketing revenues and marketing expenses.

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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Disaggregation of Revenue
The following tables present the Company’s disaggregated revenues by source and geographic area:
 
 
Successor
 
 
Three Months Ended March 31, 2018
 
 
Natural Gas
 
Oil
 
NGL
 
Oil, Natural Gas and NGL Sales
 
Marketing Revenues
 
Other Revenues
 
Total
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hugoton Basin
 
$
22,363

 
$
2,732

 
$
19,514

 
$
44,609

 
$
24,080

 
$
5,831

 
$
74,520

Mid-Continent
 
7,933

 
11,867

 
3,054

 
22,854

 
21,892

 
14

 
44,760

Permian Basin
 
2,026

 
20,108

 
3,045

 
25,179

 

 
16

 
25,195

East Texas
 
14,776

 
1,340

 
1,306

 
17,422

 
36

 
5

 
17,463

Rockies
 
3,380

 
7,370

 
1,358

 
12,108

 

 
(2
)
 
12,106

North Louisiana
 
6,378

 
1,569

 
(436
)
 
7,511

 
259

 
1

 
7,771

Michigan/Illinois
 
6,472

 
710

 
11

 
7,193

 

 
29

 
7,222

Total
 
$
63,328

 
$
45,696

 
$
27,852

 
$
136,876

 
$
46,267

 
$
5,894

 
$
189,037

Contract Balances
Under the Company’s product sales contracts, its customers are invoiced once the Company’s performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s product sales contracts do not give rise to material contract assets or contract liabilities.
The Company had trade accounts receivable related to revenue from contracts with customers of approximately $81 million and $117 million as of March 31, 2018, and December 31, 2017, respectively.
Performance Obligations
The majority of the Company’s sales are short-term in nature with a contract term of one year or less. For those contracts, the Company utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For the Company’s product sales that have a contract term greater than one year, the Company utilized the practical expedient in ASC 606-10-50-14(A) which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
Note 4 – Divestitures and Discontinued Operations
Divestitures
On March 29, 2018, the Company completed the sale of its interest in conventional properties located in west Texas (the “West Texas Assets Sale”). Cash proceeds received from the sale of these properties were approximately $108 million (including

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Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

approximately $12 million of restricted cash released in April 2018), net of costs to sell of approximately $1 million, and the Company recognized a net gain of approximately $53 million.
On February 28, 2018, the Company completed the sale of its Oklahoma waterflood and Texas Panhandle properties (the “Oklahoma and Texas Assets Sale”). Cash proceeds received from the sale of these properties were approximately $112 million (including a deposit of approximately $12 million received in 2017), net of costs to sell of approximately $1 million, and the Company recognized a net gain of approximately $48 million.
The divestitures discussed above are not presented as discontinued operations because they do not represent a strategic shift that will have a major effect on the Company’s operations and financial results. The gains on these divestitures are included in “gains (losses) on sale of assets and other, net” on the condensed consolidated statement of operations.
Divestitures – Subsequent Events
On April 10, 2018, the Company completed the sale of its conventional properties located in New Mexico (the “New Mexico Assets Sale”) related to a definitive purchase and sale agreement entered into in March 2018 and received cash proceeds of approximately $15 million.
On April 4, 2018, the Company completed the sale of its interest in properties located in the Altamont Bluebell Field in Utah (the “Altamont Bluebell Assets Sale”) related to definitive purchase and sale agreement entered into in January 2018 and received cash proceeds of approximately $129 million.
The assets and liabilities associated with the Altamont Bluebell Assets Sale and the New Mexico Assets Sale are classified as “held for sale” on the condensed consolidated balance sheet at March 31, 2018. At March 31, 2018, the Company’s condensed consolidated balance sheet included current assets of approximately $92 million included in “assets held for sale” and current liabilities of approximately $43 million included in “liabilities held for sale” related to these transactions. In addition, the assets and liabilities associated with the Oklahoma and Texas Assets Sale were classified as “held for sale” on the condensed consolidated balance sheet at December 31, 2017. At December 31, 2017, the Company’s condensed consolidated balance sheet included current assets of approximately $107 million included in “assets held for sale” and current liabilities of approximately $43 million included in “liabilities held for sale” related to this transaction.
The following table presents carrying amounts of the assets and liabilities of the Company’s properties classified as held for sale on the condensed consolidated balance sheets:
 
March 31, 2018
 
December 31, 2017
 
(in thousands)
Assets:
 
 
 
Oil and natural gas properties
$
89,875

 
$
92,245

Other property and equipment
1,433

 
12,983

Other
1,184

 
1,735

Total assets held for sale
$
92,492

 
$
106,963

Liabilities:
 
 
 
Asset retirement obligations
$
40,037

 
$
42,001

Other
2,854

 
1,301

Total liabilities held for sale
$
42,891

 
$
43,302

Other assets primarily include inventories and other liabilities primarily include accounts payable.

13

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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Discontinued Operations
During 2017, the Company completed the sale of its interest in properties located in the San Joaquin Basin and the Los Angeles Basin in California. As a result of the Company’s strategic exit from California, the Company classified the results of operations and cash flows of its California properties as discontinued operations on its condensed consolidated financial statements.
The following tables present summarized financial results of the Company’s California properties classified as discontinued operations on the condensed consolidated statements of operations:
 
Successor
 
 
Predecessor
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
(in thousands)
 
 
 
 
Revenues and other
$
7,125

 
 
$
14,891

Expenses
4,409

 
 
13,758

Other income and (expenses)
(717
)
 
 
(1,681
)
Income (loss) from discontinued operations before income taxes
1,999

 
 
(548
)
Income tax expense
1,931

 
 

Income (loss) from discontinued operations, net of income taxes
$
68

 
 
$
(548
)
Note 5 – Oil and Natural Gas Properties
Oil and Natural Gas Capitalized Costs
Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:
 
March 31, 2018
 
December 31, 2017
 
(in thousands)
 
 
 
 
Proved properties
$
732,678

 
$
904,390

Unproved properties
45,413

 
45,693

 
778,091

 
950,083

Less accumulated depletion and amortization
(48,142
)
 
(49,619
)
 
$
729,949

 
$
900,464


Note 6 – Equity Method Investments
On August 31, 2017, the Company, through certain of its subsidiaries, completed the transaction in which LINN Energy and Citizen Energy II, LLC (“Citizen”) each contributed certain upstream assets located in Oklahoma to a newly formed company, Roan Resources LLC (the contribution, the “Roan Contribution”), focused on the accelerated development of the Merge/SCOOP/STACK play. In exchange for their respective contributions, LINN Energy and Citizen each received a 50% equity interest in Roan.

14

Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The Company uses the equity method of accounting for its investment in Roan. The Company’s equity earnings (losses) consists of its share of Roan’s earnings or losses and the amortization of the difference between the Company’s investment in Roan and Roan’s underlying net assets attributable to certain assets. At both March 31, 2018, and December 31, 2017, the Company owned 50% of Roan’s outstanding units.
At March 31, 2018, the carrying amount of the Company’s investment in Roan of approximately $483 million was less than the Company’s ownership interest in Roan’s underlying net assets by approximately $342 million. The difference is attributable to proved and unproved oil and natural gas properties and is amortized over the lives of the related assets. Such amortization is included in the equity earnings (losses) from the Company’s investment in Roan.
Impairment testing on the Company’s investment in Roan is performed when events or circumstances warrant such testing and considers whether there is an inability to recover the carrying value of the investment that is other than temporary. No impairments occurred with respect to the Company’s investment in Roan for the three months ended March 31, 2018.
Following is summarized statement of operations information for Roan.
Summarized Roan Resources LLC Statement of Operations Information
 
Three Months Ended March 31, 2018
 
(in thousands)
 
 
Revenues and other
$
101,084

Expenses
57,909

Other income and (expenses)
(1,799
)
Net income
$
41,376


Note 7 – Debt
Credit Facility
On August 4, 2017, the Company entered into a credit agreement with its subsidiary Linn Energy Holdco II LLC (“Holdco II”), as borrower, Royal Bank of Canada, as administrative agent, and the lenders and agents party thereto, providing for a new senior secured reserve-based revolving loan facility (the “Credit Facility”) with $500 million in borrowing commitments and an initial borrowing base of $500 million. The maximum commitment amount was $390 million at March 31, 2018.
On April 30, 2018, the Company entered into an amendment to the Credit Facility which, among other things, modified the borrowing base and maximum borrowing commitment amount to $425 million.
As of March 31, 2018, there were no borrowings outstanding under the Credit Facility and there was approximately $343 million of available borrowing capacity (which includes a $47 million reduction for outstanding letters of credit). The maturity date is August 4, 2020.
Redetermination of the borrowing base under the Credit Facility, based primarily on reserve reports using lender commodity price expectations at such time, occurs semi-annually, in April and October. At the Company’s election, interest on borrowings under the Credit Facility is determined by reference to either the London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging from 2.50% to 3.50% per annum or the alternate base rate (“ABR”) plus an applicable margin ranging from 1.50% to 2.50% per annum, depending on utilization of the borrowing base. Interest is generally payable in arrears quarterly for loans bearing interest based at the ABR and at the end of the applicable interest period for loans bearing interest at the

15

Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

LIBOR, or if such interest period is longer than three months, at the end of the three month intervals during such interest period. The Company is required to pay a commitment fee to the lenders under the Credit Facility, which accrues at a rate per annum of 0.50% on the average daily unused amount of the available revolving loan commitments of the lenders.
The obligations under the Credit Facility are secured by mortgages covering approximately 85% of the total value of the proved reserves of the oil and natural gas properties of the Company and certain of its subsidiaries, along with liens on substantially all personal property of the Company and certain of its subsidiaries, and are guaranteed by the Company, Holdco and certain of Holdco II’s subsidiaries, subject to customary exceptions. Under the Credit Facility, the Company is required to maintain (i) a maximum total net debt to last twelve months EBITDA ratio of 4.0 to 1.0, and (ii) a minimum adjusted current ratio of 1.0 to 1.0.
The Credit Facility also contains affirmative and negative covenants, including as to compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, oil and gas engineering reports and budgets, maintenance and operation of property (including oil and gas properties), restrictions on the incurrence of liens and indebtedness, mergers, consolidations and sales of assets, paying dividends or other distributions in respect of, or repurchasing or redeeming, the Company’s capital stock, making certain investments and transactions with affiliates.
The Credit Facility contains events of default and remedies customary for credit facilities of this nature. Failure to comply with the financial and other covenants in the Credit Facility would allow the lenders, subject to customary cure rights, to require immediate payment of all amounts outstanding under the Credit Facility.
Note 8 – Derivatives
Commodity Derivatives
Historically, the Company has hedged a portion of its forecasted production to reduce exposure to fluctuations in oil and natural gas prices and provide long-term cash flow predictability to manage its business. The current direct NGL hedging market is constrained in terms of price, volume, duration and number of counterparties, which limits the Company’s ability to effectively hedge its NGL production. The Company has also hedged its exposure to differentials in certain operating areas but does not currently hedge exposure to oil or natural gas differentials.
The Company has historically entered into commodity hedging transactions primarily in the form of swap contracts that are designed to provide a fixed price, collars and, from time to time, put options that are designed to provide a fixed price floor with the opportunity for upside. The Company enters into these transactions with respect to a portion of its projected production or consumption to provide an economic hedge of the risk related to the future commodity prices received or paid. The Company does not enter into derivative contracts for trading purposes. The Company did not designate any of its contracts as cash flow hedges; therefore, the changes in fair value of these instruments are recorded in current earnings. See Note 9 for fair value disclosures about oil and natural gas commodity derivatives.

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Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The following table presents derivative positions for the periods indicated as of March 31, 2018:
 
2018
 
2019
Natural gas positions:
 
 
 
Fixed price swaps (NYMEX Henry Hub):
 
 
 
Hedged volume (MMMBtu)
52,525

 
18,615

Average price ($/MMBtu)
$
3.02

 
$
2.91

Oil positions:
 
 
 
Fixed price swaps (NYMEX WTI):
 
 
 
Hedged volume (MBbls)
413

 

Average price ($/Bbl)
$
54.07

 
$

Collars (NYMEX WTI):
 
 
 
Hedged volume (MBbls)
1,375

 
1,825

Average floor price ($/Bbl)
$
50.00

 
$
50.00

Average ceiling price ($/Bbl)
$
55.50

 
$
55.50

Natural gas basis differential positions: (1)
 
 
 
NGPL TXOK basis swaps:
 
 
 
Hedged volume (MMMBtu)
2,750

 

Hedge differential
$
(0.19
)
 

(1) 
Settle on the indicated pricing index to hedge basis differential to the NYMEX Henry Hub natural gas price.
During the three months ended March 31, 2018, the Company entered into commodity derivative contracts consisting of natural gas basis swaps for March 2018 through December 2018 and natural gas fixed price swaps for January 2019 through December 2019. During the one month ended March 31, 2017, the Company entered into commodity derivative contracts consisting of natural gas fixed price swaps for January 2018 through December 2019. The Company did not enter into any commodity derivative contracts during the two months ended February 28, 2017.
In April 2018, in connection with the closing of the Altamont Bluebell Assets Sale, the Company canceled its oil collars for 2018 and 2019. The Company paid net cash settlements of approximately $20 million for the cancellations.
The natural gas derivatives are settled based on the closing price of NYMEX Henry Hub natural gas on the last trading day for the delivery month, which occurs on the third business day preceding the delivery month, or the relevant index prices of natural gas published in Inside FERC’s Gas Market Report on the first business day of the delivery month. The oil derivatives are settled based on the average closing price of NYMEX WTI crude oil for each day of the delivery month.
Balance Sheet Presentation
The Company’s commodity derivatives are presented on a net basis in “derivative instruments” on the condensed consolidated balance sheets. The following table summarizes the fair value of derivatives outstanding on a gross basis:
 
March 31, 2018
 
December 31, 2017
 
(in thousands)
Assets:
 
 
 
Commodity derivatives
$
18,672

 
$
22,589

Liabilities:
 
 
 
Commodity derivatives
$
32,062

 
$
25,443


17

Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

By using derivative instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company’s counterparties are participants in the Credit Facility. The Credit Facility is secured by certain of the Company’s and its subsidiaries’ oil, natural gas and NGL reserves and personal property; therefore, the Company is not required to post any collateral. The Company does not receive collateral from its counterparties.
The maximum amount of loss due to credit risk that the Company would incur if its counterparties failed completely to perform according to the terms of the contracts, based on the gross fair value of financial instruments, was approximately $19 million at March 31, 2018. The Company minimizes the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard, or have a guarantee from an affiliate that meets the Company’s minimum credit quality standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.
Gains and Losses on Derivatives
Gains and losses on derivatives were net losses of approximately $15 million and $12 million for the three months ended March 31, 2018, and the one month ended March 31, 2017, respectively, and net gains of approximately $93 million for the two months ended February 28, 2017. Gains and losses on derivatives are reported on the condensed consolidated statements of operations in “gains (losses) on oil and natural gas derivatives.”
The Company paid net cash settlements of approximately $4 million for the three months March 31, 2018, received net cash payments of approximately $6 million for the one month ended March 31, 2017, and paid net cash settlements of approximately $12 million for the two months ended February 28, 2017.
Note 9 – Fair Value Measurements on a Recurring Basis
The Company accounts for its commodity derivatives at fair value (see Note 8) on a recurring basis. The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets. Assumed credit risk adjustments, based on published credit ratings and public bond yield spreads, are applied to the Company’s commodity derivatives.
Fair Value Hierarchy
In accordance with applicable accounting standards, the Company has categorized its financial instruments into a three-level fair value hierarchy based on the priority of inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

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Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

The following presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:
 
March 31, 2018
 
Level 2
 
Netting (1)
 
Total
 
(in thousands)
Assets:
 
 
 
 
 
Commodity derivatives
$
18,672

 
$
(10,449
)
 
$
8,223

Liabilities:
 
 
 
 
 
Commodity derivatives
$
32,062

 
$
(10,449
)
 
$
21,613


 
December 31, 2017
 
Level 2
 
Netting (1)
 
Total
 
(in thousands)
Assets:
 
 
 
 
 
Commodity derivatives
$
22,589

 
$
(12,491
)
 
$
10,098

Liabilities:
 
 
 
 
 
Commodity derivatives
$
25,443

 
$
(12,491
)
 
$
12,952

(1) 
Represents counterparty netting under agreements governing such derivatives.
Note 10 – Asset Retirement Obligations
The Company has the obligation to plug and abandon oil and natural gas wells and related equipment at the end of production operations. Estimated asset retirement costs are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets when the obligation is incurred. The liabilities are included in “other accrued liabilities” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets. Accretion expense is included in “depreciation, depletion and amortization” on the condensed consolidated statements of operations. The fair value of additions to the asset retirement obligations is estimated using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plug and abandon costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) future inflation factors; and (iv) a credit-adjusted risk-free interest rate. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.
The following table presents a reconciliation of the Company’s asset retirement obligations (in thousands):
Asset retirement obligations at December 31, 2017
$
164,553

Liabilities added from drilling
38

Liabilities associated with assets divested
(19,211
)
Liabilities associated with assets held for sale
(40,042
)
Current year accretion expense
2,474

Settlements
(1,473
)
Asset retirement obligations at March 31, 2018
$
106,339

Note 11 – Commitments and Contingencies
On May 11, 2016, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case

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Table of Contents
LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

No. 16‑60040. On January 27, 2017, the Bankruptcy Court entered the Confirmation Order. Consummation of the Plan was subject to certain conditions set forth in the Plan. On the Effective Date, all of the conditions were satisfied or waived and the Plan became effective and was implemented in accordance with its terms. The LINN Debtors Chapter 11 cases will remain pending until the final resolution of all outstanding claims.
The commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the Company’s bankruptcy estates. However, the Company is, and will continue to be until the final resolution of all claims, subject to certain contested matters and adversary proceedings stemming from the Chapter 11 proceedings.
In March 2017, Wells Fargo Bank, National Association (“Wells Fargo”), the administrative agent under the Predecessor’s credit facility, filed a motion in the Bankruptcy Court seeking payment of post-petition default interest of approximately $31 million. The Company has vigorously disputed that Wells Fargo is entitled to any default interest based on the plain language of the Plan and Confirmation Order. On November 13, 2017, the Bankruptcy Court ruled that the secured lenders are not entitled to payment of post-petition default interest. That ruling was appealed by Wells Fargo and on March 29, 2018, the U.S. District Court for the Southern District of Texas affirmed the Bankruptcy Court’s ruling.
The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.
Except for in connection with its Chapter 11 proceedings, the Company made no significant payments to settle any legal, environmental or tax proceedings during the three months ended March 31, 2018, or March 31, 2017. The Company regularly analyzes current information and accrues for probable liabilities on the disposition of certain matters as necessary. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Note 12 – Equity
Shares Issued and Outstanding
As of March 31, 2018, there were 76,492,933 shares of Class A common stock issued and outstanding. An additional 1,629,543 unvested restricted stock units were outstanding under the Company’s Omnibus Incentive Plan. As of March 31, 2018, the Company’s consolidated subsidiary, Holdco, had 1,392,841 vested Class A-2 units and 1,392,840 unvested Class A-2 units, which may be converted into shares of Class A common stock pursuant to the terms of the Limited Liability Company Operating Agreement of Holdco (the “Holdco LLC Agreement”). See Note 14 for additional information related to the restricted stock units and Class A-2 units.
Effective April 10, 2018, all outstanding Holdco Class A-2 units were converted into Class A common stock in accordance with the terms of the Holdco LLC Agreement. An aggregate of 2,785,681 shares of Class A common stock were issued to the respective holders and remain subject to the vesting provisions applicable to the underlying Class A-2 units.
Share Repurchase Program
The Company’s Board of Directors has authorized the repurchase of up to $400 million of the Company’s outstanding shares of Class A common stock. Any share repurchases are subject to restrictions in the Credit Facility. During the three months ended March 31, 2018, the Company repurchased an aggregate of 897,674 shares of Class A common stock at an average price of $38.73 per share for a total cost of approximately $35 million. In April 2018, the Company purchased 194,083 shares of Class A common stock at an average price of $38.80 for a total cost of approximately $8 million. At April 30, 2018, approximately $159 million was available for share repurchases under the program.

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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Tender Offer
On December 14, 2017, the Company’s Board of Directors announced the intention to commence a tender offer to purchase at least $250 million of the Company’s Class A common stock. In January 2018, upon the terms and subject to the conditions described in the Offer to Purchase dated December 20, 2017, as amended, the Company repurchased an aggregate of 6,770,833 shares of Class A common stock at a fixed price of $48.00 per share for a total cost of approximately $325 million (excluding expenses of approximately $4 million related to the tender offer).
Dividends
The Company is not currently paying a cash dividend; however, the Board of Directors periodically reviews the Company’s liquidity position to evaluate whether or not to pay a cash dividend. Any future payment of cash dividends would be subject to the restrictions in the Credit Facility.
Note 13 – Noncontrolling Interests
Noncontrolling interests represent ownership in the net assets of the Company’s consolidated subsidiary, Holdco, not attributable to LINN Energy. On the Effective Date, Holdco granted incentive interest awards to certain members of its management in the form of Class B units (see Note 14). In accordance with the terms of the Holdco LLC Agreement, on July 31, 2017, all of the Class B units were converted to Class A-2 units of Holdco. At March 31, 2018, and December 31, 2017, the noncontrolling Class A-2 units represented approximately 1.76% and 0.88%, respectively, of Holdco’s total outstanding units. Effective April 10, 2018, all outstanding Holdco Class A-2 units were converted into Class A common stock in accordance with the terms of the Holdco LLC Agreement.
Note 14 – Share-Based Compensation
A summary of share-based compensation expenses included on the condensed consolidated statements of operations is presented below:
 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
(in thousands)
 
 
 
 
 
 
General and administrative expenses
$
17,037

 
$
4,177

 
 
$
50,255

Income tax benefit
$
2,417

 
$
427

 
 
$
5,170

During the three months ended March 31, 2018, the Company granted to certain employees 12,500 restricted stock units with an aggregate grant date fair value of approximately $519,000. The restricted stock units vest over three years.
As of April 30, 2018, 1,527,943 shares were issuable under the Omnibus Incentive Plan pursuant to outstanding restricted stock units and approximately 4.2 million additional shares were reserved for future issuance under the Plan. The Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) generally has discretion regarding the timing, size and terms of future awards; however, the Omnibus Incentive Plan requires that 1) the portion of the Share Reserve that does not constitute the Emergence Awards, plus any subsequent awards forfeited before vesting (the “Remaining Share Reserve”), will be fully granted within the 36-month period immediately following the Effective Date (with such 36-month anniversary, the “Final Allocation Date”) and 2) if a Change in Control (as defined in the Omnibus Incentive Plan) occurs before the Final Allocation Date, the entire Remaining Share Reserve will be allocated on a fully-vested basis to actively employed employees (pro-rata based upon each such employee’s relative awards) upon the consummation of the Change in Control. As of April 30, 2018, all current participants in the Omnibus Incentive Plan have agreed to waive any rights they may have to future awards under this provision in consideration for the ability to participate in the Liquidity Program described below or a similar future program. The Compensation Committee has indicated that it does not intend to grant any future awards under the Omnibus Incentive Plan.

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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Upon a participant’s termination of employment and/or service (as applicable), the Company has the right (but not the obligation) to repurchase all or any portion of the shares of Class A common stock acquired pursuant to an award at a price equal to the fair market value (as determined under the Omnibus Incentive Plan) of the shares of Class A common stock to be repurchased, measured as of the date of the Company’s repurchase notice. In addition, in January 2018, the Compensation Committee approved a one-time liquidity program under which the Company agreed to 1) settle all or a portion of an eligible participant’s restricted stock units vesting on or before March 1, 2018 in cash and/or 2) repurchase all or a portion of any shares of Class A common stock held by an eligible participant as a result of a prior vesting of restricted stock units, in each case at an agreed upon price (the “Liquidity Program”). For the three months ended March 31, 2018, the Company settled 909,990 restricted stock units in cash and repurchased 120,829 shares of Class A common stock for approximately $40 million pursuant to the Liquidity Program.
Note 15 – Earnings Per Share/Unit
Basic earnings per share/unit is computed by dividing net earnings attributable to common stockholders/unitholders by the weighted average number of shares/units outstanding during the period. Diluted earnings per share/unit is computed by adjusting the average number of shares/units outstanding for the dilutive effect, if any, of potential common shares/units.
The following tables provide a reconciliation of the numerators and denominators of the basic and diluted per share/unit computations for net income (loss):
 
Successor
 
Three Months Ended March 31, 2018
 
Income
 
Shares
 
Per Share
 
(in thousands, except per share data)
 
 
 
 
 
 
Basic:
 
 
 
 
 
Net income attributable to common stockholders
$
69,824

 
78,975

 
$
0.88

 
 
 
 
 
 
Effect of Dilutive Securities:
 
 
 
 
 
Dilutive effect of restricted stock units
$

 
1,357

 
 
Dilutive effect of unvested Class A-2 units of Holdco
$
(653
)
 

 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
Net income attributable to common stockholders
$
69,171

 
80,332

 
$
0.86


 
Successor
 
One Month Ended March 31, 2017
 
Income (Loss)
 
Shares
 
Per Share
 
(in thousands, except per share data)
 
 
 
 
 
 
Basic and Diluted:
 
 
 
 
 
Loss from continuing operations
$
(7,324
)
 
89,848

 
$
(0.08
)
Income from discontinued operations, net of income taxes
68

 
89,848

 

Net loss attributable to common stockholders
$
(7,256
)
 
89,848

 
$
(0.08
)


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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

 
Predecessor
 
Two Months Ended February 28, 2017
 
Income (Loss)
 
Units
 
Per Unit
 
(in thousands, except per unit data)
 
 
 
 
 
 
Basic and Diluted:
 
 
 
 
 
Income from continuing operations
$
2,397,609

 
352,792

 
$
6.80

Loss from discontinued operations, net of income taxes
(548
)
 
352,792

 
(0.01
)
Net income attributable to common unitholders
$
2,397,061

 
352,792

 
$
6.79

The diluted earnings per share calculation excludes approximately 9,000 restricted stock units that were anti-dilutive for the three months ended March 31, 2018. The diluted earnings per share calculation excludes approximately 2 million restricted stock units and approximately 3 million Class B units that were anti-dilutive for the one month ended March 31, 2017. There were no potential common units outstanding during the two months ended February 28, 2017.
Note 16 – Income Taxes
Amounts recognized as income taxes are included in “income tax expense (benefit),” as well as discontinued operations, on the consolidated statements of operations. The effective income tax rates were approximately 36%, 42% and zero for the three months ended March 31, 2018, the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. For the three months ended March 31, 2018, the Company’s federal and state statutory rate net of the federal tax benefit was approximately 24% compared to an effective tax rate of approximately 36%. The increase in the effective tax rate is primarily due to non-deductible executive compensation.
The Successor was formed as a C corporation. For federal and state income tax purposes (with the exception of the state of Texas), the Predecessor was a limited liability company treated as a partnership, in which income tax liabilities and/or benefits were passed through to the Predecessor’s unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Predecessor’s subsidiaries were C corporations subject to federal and state income taxes. As such, with the exception of the state of Texas and certain subsidiaries, the Predecessor did not directly pay federal and state income taxes and recognition was not given to federal and state income taxes for the operations of the Predecessor. The deferred tax effects of the Company’s change to a C corporation are included in income from continuing operations for the two months ended February 28, 2017.
Note 17 – Supplemental Disclosures to the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows
“Other current assets” reported on the condensed consolidated balance sheets include the following:
 
March 31, 2018
 
December 31, 2017
 
(in thousands)
 
 
 
 
Prepaids
$
39,101

 
$
46,238

Receivable from related party
17,355

 
23,163

Inventories
6,078

 
7,667

Other
2,679

 
2,703

Other current assets
$
65,213

 
$
79,771


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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

“Other accrued liabilities” reported on the condensed consolidated balance sheets include the following:
 
March 31, 2018
 
December 31, 2017
 
(in thousands)
 
 
 
 
Accrued compensation
$
13,346

 
$
29,089

Asset retirement obligations (current portion)
1,609

 
3,926

Deposits
20,868

 
15,349

Income taxes payable
221

 
7,496

Other
2,904

 
2,757

Other accrued liabilities
$
38,948

 
$
58,617

The following table provides a reconciliation of cash and cash equivalents on the condensed consolidated balance sheets to cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows:
 
March 31, 2018
 
December 31, 2017
 
(in thousands)
 
 
 
 
Cash and cash equivalents
$
227,196

 
$
464,508

Restricted cash
77,263

 
56,445

Cash, cash equivalents and restricted cash
$
304,459

 
$
520,953


Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:
 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
(in thousands)
 
 
 
 
 
 
Cash payments for interest, net of amounts capitalized
$

 
$
1,458

 
 
$
17,651

Cash payments for income taxes
$
7,748

 
$

 
 
$

Cash payments for reorganization items, net
$
1,184

 
$
1,286

 
 
$
21,571

 
 
 
 
 
 
 
Noncash investing activities:
 
 
 
 
 
 
Accrued capital expenditures
$
34,377

 
$
18,670

 
 
$
22,191

For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. At March 31, 2018, “restricted cash” on the condensed consolidated balance sheet consisted of approximately $35 million that will be used to settle certain claims in accordance with the Plan (which is the remainder of approximately $80 million transferred to restricted cash in February 2017 to fund such items), approximately $31 million related to deposits and approximately $11 million for other items. At December 31, 2017, “restricted cash” on the condensed consolidated balance sheet consisted of approximately $36 million that will be used to settle certain claims in accordance with the Plan, approximately $15 million related to deposits and approximately $5 million for other items.

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LINN ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued
(Unaudited)

Note 18 – Related Party Transactions
Roan Resources LLC
On August 31, 2017, the Company completed the Roan Contribution. In exchange for their respective contributions, LINN Energy and Citizen each received a 50% equity interest in Roan. See Note 6 for additional information. Also on such date, Roan entered into a Master Services Agreement (the “MSA”) with Linn Operating, LLC (“Linn Operating”), a subsidiary of LINN Energy, pursuant to which Linn Operating agreed to provide certain operating, administrative and other services in respect of the assets contributed to Roan during a transitional period.
Under the MSA, Roan agreed to reimburse Linn Operating for certain costs and expenses incurred by Linn Operating in connection with providing the services, and to pay to Linn Operating a service fee of $1.25 million per month, prorated for partial months. The MSA terminated according to its terms on April 30, 2018.
In addition, the Company’s subsidiary, Blue Mountain Midstream LLC, has an agreement in place with Roan for the processing of natural gas from certain of Roan’s properties.
For the three months ended March 31, 2018, the Company recognized service fees of approximately $4 million as a reduction to general and administrative expenses. At March 31, 2018, the Company had approximately $17 million due from Roan, primarily associated with capital spending, included in “other current assets” and approximately $11 million due to Roan, primarily associated with joint interest billings and natural gas purchases, included in “accounts payable and accrued expenses” on the condensed consolidated balance sheet. At December 31, 2017, the Company had approximately $23 million due from Roan, primarily associated with capital spending, included in “other current assets” and approximately $18 million due to Roan, primarily associated with joint interest billings and natural gas purchases, included in “accounts payable and accrued expenses” on the condensed consolidated balance sheet.
Berry Petroleum Company, LLC
Berry, a former subsidiary of the Predecessor, was deconsolidated effective December 31, 2016. The employees of Linn Operating, Inc. (“LOI”), a subsidiary of the Predecessor, provided services and support to Berry in accordance with an agency agreement and power of attorney between Berry and LOI. Upon deconsolidation, transactions between the Predecessor and Berry were no longer eliminated in consolidation and were treated as related party transactions. These transactions include, but are not limited to, management fees paid to the Company by Berry. On the Effective Date, Berry emerged from bankruptcy as a stand-alone, unaffiliated entity. For the two months ended February 28, 2017, Berry incurred management fees of approximately $6 million for services provided by LOI.
LinnCo, LLC
LinnCo, which was an affiliate of the Predecessor, was formed on April 30, 2012. The Predecessor had agreed to provide to LinnCo, or to pay on LinnCo’s behalf, any financial, legal, accounting, tax advisory, financial advisory and engineering fees, and other administrative and out-of-pocket expenses incurred by LinnCo, along with any other expenses incurred in connection with any public offering of shares in LinnCo or incurred as a result of being a publicly traded entity. These expenses include costs associated with annual, quarterly and other reports to holders of LinnCo shares, tax return and Form 1099 preparation and distribution, NASDAQ listing fees, printing costs, independent auditor fees and expenses, legal counsel fees and expenses, limited liability company governance and compliance expenses and registrar and transfer agent fees. In addition, the Predecessor had agreed to indemnify LinnCo and its officers and directors for damages suffered or costs incurred (other than income taxes payable by LinnCo) in connection with carrying out LinnCo’s activities. All expenses and costs paid by the Predecessor on LinnCo’s behalf were expensed by the Predecessor.
For the two months ended February 28, 2017, LinnCo incurred total general and administrative expenses of approximately $287,000, including approximately $240,000 related to services provided by the Predecessor. All of the expenses incurred during the two months ended February 28, 2017, had been paid by the Predecessor on LinnCo’s behalf as of February 28, 2017.

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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the financial statements and related notes included in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The following discussion contains forward-looking statements based on expectations, estimates and assumptions. Actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGL, production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, as well as those factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” below and in Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, and elsewhere in the Annual Report.
When referring to Linn Energy, Inc. (“Successor,” “LINN Energy” or the “Company”), the intent is to refer to LINN Energy, a Delaware corporation formed in February 2017, and its consolidated subsidiaries as a whole or on an individual basis, depending on the context in which the statements are made. Linn Energy, Inc. is a successor issuer of Linn Energy, LLC pursuant to Rule 15d-5 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Linn Energy, Inc. is not a successor of Linn Energy, LLC for purposes of Delaware corporate law. When referring to the “Predecessor” in reference to the period prior to the emergence from bankruptcy, the intent is to refer to Linn Energy, LLC, the predecessor that will be dissolved following the effective date of the Plan (as defined below) and resolution of all outstanding claims, and its consolidated subsidiaries as a whole or on an individual basis, depending on the context in which the statements are made.
The reference to “Berry” herein refers to Berry Petroleum Company, LLC, which was an indirect 100% wholly owned subsidiary of the Predecessor through February 28, 2017. Berry was deconsolidated effective December 3, 2016. The reference to “LinnCo” herein refers to LinnCo, LLC, which was an affiliate of the Predecessor.
The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”
Executive Overview
LINN Energy is an independent oil and natural gas company that was formed in February 2017, in connection with the reorganization of the Predecessor. The Predecessor was publicly traded from January 2006 to February 2017. As discussed further below and in Note 2, on May 11, 2016 (the “Petition Date”), Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo (collectively, the “LINN Debtors”) and Berry (collectively with the LINN Debtors, the “Debtors”), filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16‑60040. During the pendency of the Chapter 11 proceedings, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. The Company emerged from bankruptcy effective February 28, 2017.
On December 3, 2016, LINN Energy filed an amended plan of reorganization that excluded Berry. As a result of its loss of control of Berry, LINN Energy concluded that it was appropriate to deconsolidate Berry effective on the aforementioned date.
The Company’s properties are currently located in six operating regions in the United States (“U.S.”):
Hugoton Basin, which includes oil and natural gas properties, as well as the Jayhawk natural gas processing plant, located in Kansas;
East Texas, which includes oil and natural gas properties producing primarily from the Cotton Valley and Bossier Sandstone;
North Louisiana, which includes oil and natural gas properties producing primarily from the Cotton Valley Sandstones;
Michigan/Illinois, which includes properties producing from the Antrim Shale formation located in northern Michigan and oil properties in southern Illinois;
Rockies, which includes non-operated properties located in the Dunkards Wash field in Utah; and
Mid-Continent, which includes properties in the Northwest STACK in northwestern Oklahoma, the Arkoma STACK located in southeastern Oklahoma, and various other oil and natural gas producing properties throughout Oklahoma, as well as the Chisholm Trail midstream business located in the Merge/SCOOP/STACK play.

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Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

The Company also owns a 50% equity interest in Roan Resources LLC (“Roan”), which is focused on the accelerated development of the Merge/SCOOP/STACK play in Oklahoma. During 2018, the Company divested all of its properties located in the previous Permian Basin operating region. During 2017, the Company divested all of its properties located in the previous California and South Texas operating regions. See below and Note 4 for details of the Company’s divestitures.
For the three months ended March 31, 2018, the Company’s results included the following:
oil, natural gas and NGL sales of approximately $137 million for the three months ended March 31, 2018, compared to $80 million and $189 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively;
average daily production of approximately 401 MMcfe/d for the three months ended March 31, 2018, compared to 759 MMcfe/d and 745 MMcfe/d for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively;
net income attributable to common stockholders of approximately $70 million for the three months ended March 31, 2018, compared to a net loss of approximately $7 million and net income of approximately $2.4 billion for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively;
net cash provided by operating activities from continuing operations of approximately $48 million for the three months ended March 31, 2018, compared to approximately $15 million and $51 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively;
capital expenditures of approximately $67 million for the three months ended March 31, 2018, compared to approximately $19 million and $46 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively; and
5 wells drilled (all successful) compared to 27 wells drilled (all successful) for the three months ended March 31, 2017.
Predecessor and Successor Reporting
As a result of the application of fresh start accounting (see Note 3), the Company’s condensed consolidated financial statements and certain note presentations are separated into two distinct periods, the period before the Effective Date (labeled Predecessor) and the period after that date (labeled Successor), to indicate the application of a different basis of accounting between the periods presented. Despite this separate presentation, there was continuity of the Company’s operations.
Divestitures
Below are the Company’s completed divestitures in 2018:
On April 10, 2018, the Company completed the sale of its conventional properties located in New Mexico (the “New Mexico Assets Sale”) related to a definitive purchase and sale agreement entered into in March 2018 and received cash proceeds of approximately $15 million.
On April 4, 2018, the Company completed the sale of its interest in properties located in the Altamont Bluebell Field in Utah (the “Altamont Bluebell Assets Sale”) related to definitive purchase and sale agreement entered into in January 2018 and received cash proceeds of approximately $129 million.
On March 29, 2018, the Company completed the sale of its interest in conventional properties located in west Texas (the “West Texas Assets Sale”). Cash proceeds received from the sale of these properties were approximately $108 million (including approximately $12 million of restricted cash released in April 2018), net of costs to sell of approximately $1 million, and the Company recognized a net gain of approximately $53 million.
On February 28, 2018, the Company completed the sale of its Oklahoma waterflood and Texas Panhandle properties (the “Oklahoma and Texas Assets Sale”). Cash proceeds received from the sale of these properties were approximately $112 million (including a deposit of approximately $12 million received in 2017), net of costs to sell of approximately $1 million, and the Company recognized a net gain of approximately $48 million.

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Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

As a result of the Company’s strategic exit from California during 2017 (completed by the San Joaquin Basin Sale and Los Angeles Basin Sale), the Company classified the results of operations and cash flows of its California properties as discontinued operations on its condensed consolidated financial statements.
Construction of Cryogenic Plant
In July 2017, the Company’s subsidiary Blue Mountain Midstream LLC entered into a definitive agreement with BCCK Engineering, Inc. to construct a 225 MMcf/d cryogenic natural gas processing facility with a total capacity of 250 MMcf/d (the “Chisholm Trail Cryogenic Gas Plant”). The facility is expected to be commissioned by the end of the second quarter of 2018.
2018 Oil and Natural Gas Capital Budget
For 2018, the Company estimates its total capital expenditures, excluding acquisitions, will be approximately $160 million, including approximately $35 million related to its oil and natural gas capital program and approximately $120 million related to Blue Mountain. This estimate is under continuous review and subject to ongoing adjustments.
Financing Activities
Share Repurchase Program
The Company’s Board of Directors has authorized the repurchase of up to $400 million of the Company’s outstanding shares of Class A common stock. Any share repurchases are subject to restrictions in the Credit Facility. During the three months ended March 31, 2018, the Company repurchased an aggregate of 897,674 shares of Class A common stock at an average price of $38.73 per share for a total cost of approximately $35 million. In April 2018, the Company purchased 194,083 shares of Class A common stock at an average price of $38.80 for a total cost of approximately $8 million. At April 30, 2018, approximately $159 million was available for share repurchases under the program.
Tender Offer
On December 14, 2017, the Company’s Board of Directors announced the intention to commence a tender offer to purchase at least $250 million of the Company’s Class A common stock. In January 2018, upon the terms and subject to the conditions described in the Offer to Purchase dated December 20, 2017, as amended, the Company repurchased an aggregate of 6,770,833 shares of Class A common stock at a fixed price of $48.00 per share for a total cost of approximately $325 million (excluding expenses of approximately $4 million related to the tender offer).
Credit Facility
On April 30, 2018, the Company entered into an amendment to the Credit Facility which, among other things, modified the borrowing base and maximum borrowing commitment amount to $425 million.
Commodity Derivatives
In April 2018, in connection with the closing of the Altamont Bluebell Assets Sale, the Company canceled its oil collars for 2018 and 2019. The Company paid net cash settlements of approximately $20 million for the cancellations.

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Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Results of Operations
The following table reflects the Company’s results of operations for each of the Successor and Predecessor periods presented:
 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
(in thousands)
 
 
 
 
 
 
Revenues and other:
 
 
 
 
 
 
Natural gas sales
$
63,328

 
$
38,070

 
 
$
99,561

Oil sales
45,696

 
30,238

 
 
58,560

NGL sales
27,852

 
12,017

 
 
30,764

Total oil, natural gas and NGL sales
136,876

 
80,325

 
 
188,885

Gains (losses) on oil and natural gas derivatives
(15,030
)
 
(11,959
)
 
 
92,691

Marketing and other revenues (1)
52,161

 
4,942

 
 
16,551

 
174,007

 
73,308

 
 
298,127

Expenses:
 
 
 
 
 
 
Lease operating expenses
47,884

 
24,630

 
 
49,665

Transportation expenses
19,094

 
13,723

 
 
25,972

Marketing expenses
41,755

 
2,539

 
 
4,820

General and administrative expenses (2)
44,779

 
10,411

 
 
71,745

Exploration costs
1,202

 
55

 
 
93

Depreciation, depletion and amortization
28,465

 
19,914

 
 
47,155

Taxes, other than income taxes
8,452

 
7,077

 
 
14,877

(Gains) losses on sale of assets and other, net
(106,075
)
 
484

 
 
829

 
85,556

 
78,833

 
 
215,156

Other income and (expenses)
24,772

 
(4,549
)
 
 
(16,717
)
Reorganization items, net
(1,951
)
 
(2,565
)
 
 
2,331,189

Income (loss) from continuing operations before income taxes
111,272

 
(12,639
)
 
 
2,397,443

Income tax expense (benefit)
40,174

 
(5,315
)
 
 
(166
)
Income (loss) from continuing operations
71,098

 
(7,324
)
 
 
2,397,609

Income (loss) from discontinued operations, net of income taxes

 
68

 
 
(548
)
Net income (loss)
71,098

 
(7,256
)
 
 
2,397,061

Net income attributable to noncontrolling interests
1,274

 

 
 

Net income (loss) attributable to common stockholders/unitholders
$
69,824

 
$
(7,256
)
 
 
$
2,397,061

(1) 
Marketing and other revenues for the two months ended February 28, 2017, include approximately $6 million of management fee revenues recognized by the Company from Berry. Management fee revenues are included in “other revenues” on the condensed consolidated statement of operations.
(2) 
General and administrative expenses for the three months ended March 31, 2018, the one month ended March 31, 2017, and the two months ended February 28, 2017, include approximately $17 million, $4 million and $50 million, respectively, of noncash share-based compensation expenses. In addition, general and administrative expenses for the two months ended February 28, 2017, include expenses incurred by LINN Energy associated with the operations of Berry. On February 28, 2017, LINN Energy and Berry emerged from Bankruptcy as stand-alone, unaffiliated entities.

29

Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
Average daily production:
 
 
 
 
 
 
Natural gas (MMcf/d)
266

 
496

 
 
495

Oil (MBbls/d)
8.5

 
20.8

 
 
20.2

NGL (MBbls/d)
14.1

 
23.1

 
 
21.4

Total (MMcfe/d)
401

 
759

 
 
745

 
 
 
 
 
 
 
Average daily production – Equity method investments: (1)
 
 
 
 
 
 
Total (MMcfe/d)
113

 

 
 

 
 
 
 
 
 
 
Weighted average prices: (2)
 
 
 
 
 
 
Natural gas (Mcf)
$
2.65

 
$
2.48

 
 
$
3.41

Oil (Bbl)
$
59.87

 
$
46.90

 
 
$
49.16

NGL (Bbl)
$
21.91

 
$
16.76

 
 
$
24.37

 
 
 
 
 
 
 
Average NYMEX prices:
 
 
 
 
 
 
Natural gas (MMBtu)
$
3.00

 
$
2.63

 
 
$
3.66

Oil (Bbl)
$
62.87

 
$
49.67

 
 
$
53.04

 
 
 
 
 
 
 
Costs per Mcfe of production:
 
 
 
 
 
 
Lease operating expenses
$
1.33

 
$
1.05

 
 
$
1.13

Transportation expenses
$
0.53

 
$
0.58

 
 
$
0.59

General and administrative expenses (3)
$
1.24

 
$
0.44

 
 
$
1.63

Depreciation, depletion and amortization
$
0.79

 
$
0.85

 
 
$
1.07

Taxes, other than income taxes
$
0.23

 
$
0.30

 
 
$
0.34

 
 
 
 
 
 
 
Average daily production – discontinued operations:
 
 
 
 
 
 
Total (MMcfe/d)

 
29

 
 
30

(1) 
Represents the Company’s 50% equity interest in Roan.
(2) 
Does not include the effect of gains (losses) on derivatives.
(3) 
General and administrative expenses for the three months ended March 31, 2018, the one month ended March 31, 2017, and the two months ended February 28, 2017, include approximately $17 million, $4 million and $50 million, respectively, of noncash share-based compensation expenses. In addition, general and administrative expenses for the two months ended February 28, 2017, include expenses incurred by LINN Energy associated with the operations of Berry. On February 28, 2017, LINN Energy and Berry emerged from Bankruptcy as stand-alone, unaffiliated entities.


30

Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Revenues and Other
Oil, Natural Gas and NGL Sales
Oil, natural gas and NGL sales decreased by approximately $132 million or 49% to approximately $137 million for the three months ended March 31, 2018, from approximately $80 million and $189 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively, due to lower production volumes as a result of divestitures completed in 2017 and 2018 and lower commodity prices. Lower natural gas prices resulted in a decrease in revenues of approximately $9 million. Higher oil prices resulted in an increase in revenues of approximately $9 million. In addition, revenues decreased by approximately $1 million due to the impact of the new accounting standard related to revenues from contracts with customers, adopted on January 1, 2018. As of January 1, 2017, revenue is recognized net of transportation expenses if the processor is the customer and there is no redelivery of commodities to the Company. See Note 1 for additional details of the revenue accounting standard.
Average daily production volumes decreased to approximately 401 MMcfe/d for the three months ended March 31, 2018, from approximately 759 MMcfe/d and 745 MMcfe/d for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. Lower natural gas, oil and NGL production volumes resulted in a decrease in revenues of approximately $64 million, $52 million and $15 million, respectively.
The following table sets forth average daily production by region:
 
Successor
 
 
Predecessor
 
Three Months Ended March 31, 2018
 
One Month Ended March 31, 2017
 
 
Two Months Ended February 28, 2017
Average daily production (MMcfe/d):
 
 
 
 
 
 
Hugoton Basin
158

 
168

 
 
158

Mid-Continent
57

 
128

 
 
110

East Texas
56

 
51

 
 
52

Permian Basin
39

 
46

 
 
49