Linn Energy
LINN ENERGY, INC. (Form: 8-K, Received: 06/01/2017 16:53:52)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): June 1, 2017 (May 25, 2017)

 

 

LINN ENERGY, INC.

(Exact name of registrant specified in its charter)

 

 

 

Delaware   000-51719   81-5366183
(State or Other Jurisdiction   (Commission   (I.R.S. Employer
Of Incorporation)   File Number)   Identification No.)

 

600 Travis Street

Houston, Texas

  77002
(Address of principal executive offices)   (Zip Code)

(281) 840-4000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

 

 

 


Item 1.01. Entry into a Material Definitive Agreement.

Purchase and Sale Agreement

On May 25, 2017, Linn Energy Holdings, LLC (“LEH”) and Linn Operating, LLC (“LOL” and together with LEH, the “Seller”), each of which is a wholly owned subsidiary of Linn Energy, Inc. (the “Company”), entered into a purchase and sale agreement (the “PSA”) with Denbury Onshore, LLC (the “Buyer”). Pursuant to the terms of the PSA, the Seller agrees to sell approximately 5,000 total net acres located in the Salt Creek Field, Wyoming to the Buyer for $71.5 million in cash, subject to purchase price adjustments (the “Denbury Assets Sale”). Proceeds from the Denbury Assets Sale are expected to be used to reduce outstanding borrowings under the Company’s revolving credit facility. The Denbury Assets Sale is expected to close in the second quarter of 2017, with an effective date of March 1, 2017.

The PSA contains various representations, warranties, covenants and indemnification obligations of the Seller and the Buyer that are customary in transactions of this type. The closing is subject to satisfaction or waiver of specified conditions, including the material accuracy of the representations and warranties of the Seller and the Buyer. There can be no assurance that these closing conditions will be satisfied.

The PSA may be terminated, subject to certain exceptions, (i) by mutual written consent of the Seller and the Buyer, (ii) resulting from certain material breaches of the PSA that remain uncured and cause the failure of certain closing conditions, (iii) if the closing has not occurred on or before August 1, 2017, (iv) in the event the conditions related to the Title Defect Values (as defined in the PSA) and the Aggregate Environmental Defect Values (as defined in the PSA) are not satisfied and (v) upon the occurrence of certain other events specified in the PSA.

On May 26, 2017, the Buyer placed into escrow approximately $7.15 million (the “Deposit Amount”). If the PSA is terminated under certain circumstances resulting from a breach of the PSA by the Buyer, the Seller will be entitled to receive the Deposit Amount as liquidated damages. Alternatively, if the PSA is terminated under certain circumstances resulting from a breach of the PSA by the Seller, the Buyer will be entitled, in addition to seeking damages for breach of the PSA, to receive the Deposit Amount.

The foregoing description of the PSA and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the PSA, which will be filed with the Company’s Form 10-Q for the quarter ending June 30, 2017. The PSA is filed herewith to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, the Seller or the Buyer as of the specific dates therein, is solely for the benefit of the parties to the PSA, may be subject to limitations agreed upon by the contracting parties, including being qualified by disclosures made for the purposes of allocating contractual risk between the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the PSA and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the PSA and this subsequent information may or may not be fully reflected in the Company’s public disclosures.

First Amendment to Credit Agreement

On May 31, 2017, the Company entered into the First Amendment and Consent to Credit Agreement (the “First Amendment”), by and among Linn Energy Holdco II LLC, as borrower (the “Borrower”), Linn Energy Holdco LLC, the Company, the subsidiary guarantors named therein, Wells Fargo Bank, National Association, as administrative agent (the “Administrative Agent”), and each of the lenders party thereto (the “Lenders”). The First Amendment amends the parties’ existing Credit Agreement, dated as of February 28, 2017 (the “Credit Agreement”) to provide for, among other things:

(i) the payment in full of the outstanding principal and interest due on account of the term loan under the Credit Agreement and the payment of a portion of the outstanding principal and interest due on account of the reserve-based revolving loan under the Credit Agreement, as funded by no less than $500 million in minimum net cash proceeds from the Jonah Assets Sale (as defined in Item 2.01 below);


(ii) the elimination of the non-conforming borrowing base in respect of the revolving loan facility;

(iii) a decrease in the Borrower’s permitted maximum total net debt to EBITDA maintenance covenant ratio to no more than 4.00 to 1.00, as measured as of the last date of each fiscal quarter, with the first measurement date to be reset to September 30, 2017;

(iv) an additional requirement that the Borrower maintain a minimum maintenance covenant ratio of current assets (including undrawn capacity under the revolving credit agreement) to current liabilities of no less than 1.00 to 1.00, measured as of the last date of any fiscal quarter for the trailing twelve month period then ended, beginning with the fiscal quarter ending September 30, 2017;

(v) the addition of certain permitted investments and restricted payment baskets, including share repurchases up to $75 million, each subject to certain specified terms, conditions, and thresholds;

(vi) the addition of flexibility to contribute specified assets to unrestricted subsidiaries and permitted joint ventures, each subject to certain terms and conditions, including certain separateness covenants;

(vii) the parties’ consent to certain borrowing base adjustments in connection with the sale of certain oil and gas properties, including the Denbury Assets Sale and the Jonah Assets Sale;

(viii) the parties’ consent to a $1 billion borrowing base, applicable to the period beginning on May 31, 2017, with the next scheduled borrowing base redetermination to occur on October 1, 2017; and

(ix) an extension of the deadline for entry into natural gas swap agreements for calendar year 2019 to October 1, 2017.

The First Amendment also contains customary representations, warranties and agreements of the Borrower, the Company, and its subsidiary guarantors.

All other material terms and conditions of the parties’ existing Credit Agreement were unchanged.

The foregoing description of the First Amendment does not purport to be complete and is qualified in its entirety by reference to the First Amendment, which will be filed with the Company’s Form 10-Q for the quarter ending June 30, 2017.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Current Report on Form 8-K are forward-looking and are based upon the Company’s current belief as to the outcome and timing of future events. All statements, other than statements of historical facts, that address activities that the Company plans, expects, believes, projects, estimates or anticipates will, should or may occur in the future are forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, but are not limited to, the ability to consummate the Denbury Assets Sale as contemplated by the PSA, the use of the proceeds from the Denbury Assets Sale to reduce outstanding borrowings under the Company’s debt instruments and the risk factors and known trends and uncertainties as described in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. These and other important factors could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. Please read “Risk Factors” in the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other public filings. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.


Item 2.01 Completion of Acquisition or Disposition of Assets.

On May 31, 2017, LEH and LOL completed the previously announced sale to Jonah Energy LLC of producing wells and developed and undeveloped acreage covering approximately 27,500 total net acres located in western Wyoming (the “Jonah Assets Sale”). The Company used the net cash proceeds received of approximately $561 million to repay in full its approximate $294 million term loan and to repay a portion of the borrowings outstanding under its revolving loan.

The foregoing description of the Jonah Assets Sale does not purport to be complete and is qualified in its entirety by reference to the Purchase and Sale Agreement, dated April 30, 2017, by and between LEH, LOL and Jonah Energy LLC, which was filed with the Company’s Current Report on Form 8-K on May 4, 2017 and is incorporated by reference herein.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.

The description of the First Amendment included under Item 1.01 of this Current Report on Form 8-K is incorporated by reference herein.

 

Item 9.01. Financial Statements and Exhibits.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed consolidated balance sheet of the Company as of March 31, 2017, which gives effect to the Jonah Assets Sale, and the unaudited pro forma condensed consolidated statements of operations of the Company for the three months ended March 31, 2017, and the year ended December 31, 2016, which give effect to the Jonah Assets Sale as well as the Company’s plan of reorganization and fresh start accounting, are furnished as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein.

(d) Exhibits.

 

Exhibit

Number

  

Description

99.1    The unaudited pro forma condensed consolidated balance sheet of the Company as of March 31, 2017, which gives effect to the Jonah Assets Sale, and the unaudited pro forma condensed consolidated statements of operations of the Company for the three months ended March 31, 2017, and the year ended December 31, 2016, which give effect to the Jonah Assets Sale as well as the Company’s plan of reorganization and fresh start accounting.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: June 1, 2017     LINN ENERGY, INC.
    By:  

/s/ Candice J. Wells

      Name:  

Candice J. Wells

      Title:   Senior Vice President, General Counsel and Corporate Secretary


Exhibit Index

 

Exhibit

Number

  

Description

99.1    The unaudited pro forma condensed consolidated balance sheet of the Company as of March 31, 2017, which gives effect to the Jonah Assets Sale, and the unaudited pro forma condensed consolidated statements of operations of the Company for the three months ended March 31, 2017, and the year ended December 31, 2016, which give effect to the Jonah Assets Sale as well as the Company’s plan of reorganization and fresh start accounting.

Exhibit 99.1

LINN ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

When referring to Linn Energy, Inc. (formerly known as Linn Energy, LLC) (“Successor” or “LINN Energy”), the intent is to refer to LINN Energy, a newly formed Delaware corporation, 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”). 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 of reorganization 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.

On May 31, 2017, LINN Energy, through certain of its wholly owned subsidiaries, completed the previously announced sale of its properties located in western Wyoming to Jonah Energy, LLC (the “Jonah Assets Sale”). LINN Energy used the net cash proceeds received of approximately $561 million to repay in full its approximate $294 million term loan and to repay a portion of the borrowings outstanding under its revolving loan.

On May 11, 2016 (the “Petition Date”), Linn Energy, LLC and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16-60040. LINN Energy emerged from bankruptcy effective February 28, 2017 (the “Effective Date”). Upon emergence from bankruptcy on February 28, 2017, LINN Energy adopted fresh start accounting which resulted in it becoming a new entity for financial reporting purposes.

The unaudited pro forma condensed consolidated balance sheet gives effect to the Jonah Assets Sale as if the transaction had been completed as of March 31, 2017. The unaudited pro forma condensed consolidated statements of operations give effect to the Jonah Assets Sale as well as LINN Energy’s plan of reorganization and fresh start accounting as if each had been completed as of January 1, 2016.

The unaudited pro forma condensed consolidated financial statements are for informational and illustrative purposes only and are not necessarily indicative of the financial results that would have occurred if the transaction or the Effective Date had occurred on the dates indicated, nor are such financial statements necessarily indicative of the financial position or results of operations in future periods. The unaudited pro forma condensed consolidated financial statements do not include the realization of cost savings expected to result from the transaction or the plan of reorganization. The assumptions and estimates underlying the adjustments to the unaudited pro forma condensed consolidated financial statements are described in the accompanying notes. The unaudited pro forma condensed consolidated financial information should also be read in conjunction with LINN Energy’s historical financial statements and the notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2016, as amended, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

 

1


LINN ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 2017

(in thousands)

 

     Successor                   
     LINN Energy
Historical
    Jonah Assets
Sale

Pro Forma
Adjustments
         LINN Energy
Pro Forma
 

ASSETS

         

Current assets:

         

Cash and cash equivalents

   $ 1,072     $ 560,702     (a)    $ 1,072  
       (560,702   (a)   

Accounts receivable – trade, net

     181,034       (663   (b)      180,371  

Derivative instruments

     2,406       —            2,406  

Restricted cash

     81,766       5,000     (a)      86,766  

Other current assets

     91,005       (4,014   (b)      86,991  
  

 

 

   

 

 

      

 

 

 

Total current assets

     357,283       323          357,606  
  

 

 

   

 

 

      

 

 

 

Noncurrent assets:

         

Oil and natural gas properties (successful efforts method), net

     2,188,542       (303,032   (b)      1,885,510  

Other property and equipment, net

     441,754       (4,784   (b)      436,970  

Derivative instruments

     8,960       —            8,960  

Deferred income taxes

     624,704       (93,868   (c)      530,836  

Other noncurrent assets

     23,352       —            23,352  
  

 

 

   

 

 

      

 

 

 

Total noncurrent assets

     3,287,312       (401,684        2,885,628  
  

 

 

   

 

 

      

 

 

 

Total assets

   $ 3,644,595     $ (401,361      $ 3,243,234  
  

 

 

   

 

 

      

 

 

 

LIABILITIES AND EQUITY

         

Current liabilities:

         

Accounts payable and accrued expenses

   $ 334,160     $ (928   (b)    $ 333,232  

Derivative instruments

     18,701       —            18,701  

Current portion of long-term debt

     28,125       (28,125   (a)      —    

Other accrued liabilities

     48,829       (680   (b)      48,149  
  

 

 

   

 

 

      

 

 

 

Total current liabilities

     429,815       (29,733        400,082  
  

 

 

   

 

 

      

 

 

 

Noncurrent liabilities:

         

Long-term debt

     805,625       (527,577   (a)      278,048  

Other noncurrent liabilities

     350,981       (35,412   (b)      315,569  
  

 

 

   

 

 

      

 

 

 

Total noncurrent liabilities

     1,156,606       (562,989        593,617  
  

 

 

   

 

 

      

 

 

 

Temporary equity:

         

Redeemable noncontrolling interests

     29,350       —            29,350  

Stockholders’ equity:

         

Successor Class A common stock

     89       —            89  

Successor additional paid-in capital

     2,035,991       —            2,035,991  

Successor retained earnings (accumulated deficit)

     (7,256     191,361     (d)      184,105  
  

 

 

   

 

 

      

 

 

 

Total stockholders’ equity

     2,028,824       191,361          2,220,185  
  

 

 

   

 

 

      

 

 

 

Total liabilities and equity

   $ 3,644,595     $ (401,361      $ 3,243,234  
  

 

 

   

 

 

      

 

 

 

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

 

2


LINN ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2017

(in thousands, except per share and per unit amounts)

 

     Predecessor     Successor                                  
     Two Months
Ended
February 28,
2017
    One Month
Ended
March 31,
2017
    Pro Forma Adjustments                 
     LINN
Energy
Historical
    LINN
Energy
Historical
    Reorganization
and Fresh
Start
Accounting
         Jonah Assets
Sale
         LINN
Energy

Pro Forma
     

Revenues and other:

                  

Oil, natural gas and natural gas liquids sales

   $ 203,766     $ 87,445     $ —          $ (40,568   (j)    $ 250,643    

Gains (losses) on oil and natural gas derivatives

     92,691       (11,959     —            —            80,732    

Marketing revenues

     6,636       2,914       —            —            9,550    

Other revenues

     9,925       2,033       —            (2   (j)      11,956    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   
     313,018       80,433       —            (40,570        352,881    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   
 

Expenses:

                  

Lease operating expenses

     53,224       27,166       —            (5,228   (j)      75,162    

Transportation expenses

     25,972       13,723       —            (5,275   (j)      34,420    

Marketing expenses

     4,820       2,539       —            —            7,359    

General and administrative expenses

     71,745       10,411       (39,686   (e)      —            42,470    

Exploration costs

     93       55       —            —            148    

Depreciation, depletion and amortization

     56,484       21,362       (13,481   (f)      (10,852   (k)      53,513    

Taxes, other than income taxes

     15,747       7,502       —            (4,264   (j)      18,985    

Losses on sale of assets and other, net

     672       445       —            —            1,117    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   
     228,757       83,203       (53,167        (25,619        233,174    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Other income and (expenses):

                  

Interest expense, net of amounts capitalized

     (18,406     (4,917     10,742     (g)      8,533     (l)      (4,048  

Other, net

     (149     (388     —            —            (537  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   
     (18,555     (5,305     10,742          8,533          (4,585  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Reorganization items, net

     2,331,189       (2,565     (2,328,624   (h)      —            —      
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Income (loss) before income taxes

     2,396,895       (10,640     (2,264,715        (6,418        115,122    

Income tax expense (benefit)

     (166     (3,384     46,900     (i)      (578   (i)      42,772    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Net income (loss)

   $ 2,397,061     $ (7,256   $ (2,311,615      $ (5,840      $ 72,350    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   
 

Basic and diluted net income (loss) per share/unit

   $ 6.79     $ (0.08             $ 0.81    
  

 

 

   

 

 

             

 

 

   
 

Basic and diluted weighted average shares/units outstanding

     352,792       89,848                 89,848     (m)
  

 

 

   

 

 

             

 

 

   

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

 

3


LINN ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2016

(in thousands, except per share and per unit amounts)

 

     Predecessor     Pro Forma Adjustments                 
     LINN Energy
Historical
    Reorganization
and Fresh Start
Accounting
         Jonah Assets
Sale
         LINN Energy
Pro Forma
     

Revenues and other:

                

Oil, natural gas and natural gas liquids sales

   $ 952,132     $ —          $ (147,115   (j)    $ 805,017    

Losses on oil and natural gas derivatives

     (164,330     —            —            (164,330  

Marketing revenues

     36,505       —            —            36,505    

Other revenues

     93,406       —            (8   (j)      93,398    
  

 

 

   

 

 

      

 

 

      

 

 

   
     917,713       —            (147,123        770,590    
  

 

 

   

 

 

      

 

 

      

 

 

   

Expenses:

                

Lease operating expenses

     317,046       —            (19,262   (j)      297,784    

Transportation expenses

     161,037       —            (32,962   (j)      128,075    

Marketing expenses

     29,736       —            —            29,736    

General and administrative expenses

     237,841       14,016     (e)      —            251,857    

Exploration costs

     4,080       —            —            4,080    

Depreciation, depletion and amortization

     404,237       (103,399   (f)      (74,426   (k)      226,412    

Impairment of long-lived assets

     165,044       —            —            165,044    

Taxes, other than income taxes

     74,838       —            (15,410   (j)      59,428    

Losses on sale of assets and other, net

     15,558       —            —            15,558    
  

 

 

   

 

 

      

 

 

      

 

 

   
     1,409,417       (89,383        (142,060        1,177,974    
  

 

 

   

 

 

      

 

 

      

 

 

   

Other income and (expenses):

                

Interest expense, net of amounts capitalized

     (192,862     143,015     (g)      35,426     (l)      (14,421  

Other, net

     (1,536     —            —            (1,536  
  

 

 

   

 

 

      

 

 

      

 

 

   
     (194,398     143,015          35,426          (15,957  
  

 

 

   

 

 

      

 

 

      

 

 

   

Reorganization items, net

     311,599       (311,599   (h)      —            —      
  

 

 

   

 

 

      

 

 

      

 

 

   

Loss from continuing operations before income taxes

     (374,503     (79,201        30,363          (423,341  

Income tax expense (benefit)

     11,194       (170,370   (i)      —       (i)      (159,176  
  

 

 

   

 

 

      

 

 

      

 

 

   

Loss from continuing operations

   $ (385,697   $ 91,169        $ 30,363        $ (264,165  
  

 

 

   

 

 

      

 

 

      

 

 

   

Basic and diluted loss per unit/share - continuing operations

   $ (1.10             $ (2.94  
  

 

 

             

 

 

   

Basic and diluted weighted average units/shares outstanding

     352,653                 89,848     (m)
  

 

 

             

 

 

   

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

 

4


LINN ENERGY, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The unaudited pro forma condensed consolidated balance sheet as of March 31, 2017, is derived from the historical consolidated balance sheet of LINN Energy with adjustments to reflect the Jonah Assets Sale.

The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2017, and the year ended December 31, 2016, are derived from:

 

  the historical consolidated statements of operations of LINN Energy;

 

  adjustments to reflect the Jonah Assets Sale; and

 

  adjustments to reflect LINN Energy’s plan of reorganization and fresh start accounting.

The unaudited pro forma condensed consolidated balance sheet gives effect to the Jonah Assets Sale as if the transaction had been completed as of March 31, 2017. The unaudited pro forma condensed consolidated statements of operations give effect to the Jonah Assets Sale as well as LINN Energy’s plan of reorganization and fresh start accounting as if each had been completed as of January 1, 2016. The transaction and events as well as the related adjustments are described below. In the opinion of LINN Energy management, all adjustments have been made that are necessary to present fairly, in accordance with Regulation S-X, the pro forma condensed consolidated financial statements.

The historical condensed consolidated financial statements have been adjusted in the unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the transaction and events, (2) factually supportable and (3) with respect to the pro forma condensed consolidated statements of operations, expected to have a continuing impact on the results following the transaction and events.

Note 2 – Jonah Assets Sale and Emergence From Voluntary Reorganization Under Chapter 11

Jonah Assets Sale

On May 31, 2017, LINN Energy, through certain of its wholly owned subsidiaries, completed the Jonah Assets Sale. The assets and liabilities associated with the properties sold in the Jonah Assets Sale, as well as the related results of operations, were included in the historical financial statements of LINN Energy until the date of sale.

Emergence From Voluntary Reorganization Under Chapter 11

Upon emergence from bankruptcy on February 28, 2017, LINN Energy adopted fresh start accounting which resulted in it becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the plan of reorganization, the condensed consolidated financial statements on or after February 28, 2017, are not comparable with the condensed consolidated financial statements prior to that date.

Note 3 – Pro Forma Adjustments

 

(a) Reflects approximately $561 million of cash proceeds, net of costs to sell of approximately $5 million, received from the Jonah Assets Sale. Of the net cash proceeds received, $5 million remains in escrow, approximately $294 million was used to repay in full the term loan, including the current portion of approximately $28 million, and approximately $262 million was used to repay a portion of the borrowings outstanding under LINN Energy’s revolving loan.

 

5


LINN ENERGY, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS – Continued

 

(b) Reflects the elimination of assets and liabilities associated with the Jonah Assets Sale as of March 31, 2017. See below for a summary of the net assets sold (in thousands):

 

Assets:

  

Current

   $ 4,677  

Oil and natural gas properties

     303,032  

Other property and equipment

     4,784  
  

 

 

 

Total assets sold

     312,493  
  

 

 

 

Liabilities:

  

Current

     1,608  

Asset retirement obligations (excluding $680 in current liabilities)

     35,412  
  

 

 

 

Total liabilities sold

     37,020  
  

 

 

 

Net assets sold

   $ 275,473  
  

 

 

 

 

(c) Reflects a reduction of deferred income taxes as a result of the Jonah Assets Sale.

 

(d) Reflects a net gain on the Jonah Assets Sale of approximately $191 million. This gain is excluded from the pro forma statements of operations as it represents a nonrecurring credit not expected to have a continuing impact.

 

(e) For the three months ended March 31, 2017, reflects the elimination of Effective Date share-based compensation expenses of approximately $50 million, which represent nonrecurring amounts directly attributable to the plan of reorganization and not expected to have a continuing impact, partially offset by the recognition of approximately $10 million in additional recurring share-based compensation expenses.

For the year ended December 31, 2016, reflects the recognition of approximately $68 million in recurring share-based compensation expenses, partially offset by the elimination of the Predecessor’s share-based compensation expenses of approximately $34 million and prepetition restructuring costs of approximately $20 million. In December 2016, the Predecessor canceled all of its then-outstanding nonvested share-based awards without consideration given to the employees. In February 2017, the Successor granted new awards to certain of its employees in accordance with its plan of reorganization.

 

(f) Reflects a reduction of depreciation, depletion and amortization expense based on new asset values and useful lives as a result of adopting fresh start accounting as of the Effective Date.

 

6


LINN ENERGY, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS – Continued

 

(g) Reflects a reduction of interest expense as a result of the plan of reorganization. As of the Effective Date, borrowings under the Successor’s credit facility included a term loan of $300 million and a revolving loan of $600 million, which incurred interest at rates of 8.33% and 4.33% per annum, respectively. The pro forma adjustments to interest expense were calculated as follows:

 

    Three Months
Ended
March 31,

2017
    Year Ended
December 31,
2016
 
    (in thousands)  

Reversal of Predecessor’s credit facility and term loan interest expense

  $ 16,946     $ 100,605  

Reversal of Predecessor’s senior notes interest expense

    —         81,797  

Reversal of amortization of debt costs on Predecessor’s credit facility

    1,338       10,697  

Reversal of Predecessor’s capitalized interest and other

    122       (237

Pro forma term loan interest expense on drawn amounts

    (3,334     (23,867

Pro forma revolving loan interest expense on drawn amounts

    (4,330     (25,980
 

 

 

   

 

 

 

Pro forma adjustments to decrease interest expense

  $ 10,742     $ 143,015  
 

 

 

   

 

 

 

 

(h) Reflects the elimination of nonrecurring reorganization items that were directly attributable to the Chapter 11 reorganization, which consist of the following:

 

     Predecessor      Successor  
     Two Months
Ended
February 28,

2017
     One Month
Ended
March 31,

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 of reorganization

     264,889        —    

Legal and other professional advisory fees

     (46,961      (2,570

Terminated contracts

     (6,915      —    

Other

     (13,049      5  
  

 

 

    

 

 

 

Reorganization items, net

   $ 2,331,189      $ (2,565
  

 

 

    

 

 

 

 

7


LINN ENERGY, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS – Continued

 

     Predecessor  
     Year Ended
December 31,
2016
 
     (in thousands)  

Legal and other professional advisory fees

   $ (56,656

Unamortized deferred financing fees, discounts and premiums

     (52,045

Gain related to interest payable on the 12.00% senior secured second lien notes due December 2020

     551,000  

Terminated contracts

     (66,052

Other

     (64,648
  

 

 

 

Reorganization items, net

   $ 311,599  
  

 

 

 

 

(i) Effective February 28, 2017, upon consummation of the plan of reorganization, the Successor became a C corporation subject to federal and state income taxes. Prior to the consummation of the plan of reorganization, the Predecessor was a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company were passed through to its 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 pro forma adjustments to income tax expense (benefit) reflect the results of the Successor as a C corporation based on an estimated tax rate of 37.6%.

 

(j) Reflects the elimination of the revenues and direct operating expenses associated with the Jonah Assets Sale.

 

(k) Reflects a reduction of depreciation, depletion and amortization expense as a result of the Jonah Assets Sale.

 

(l) Reflects a reduction of interest expense as a result of the repayment of approximately $556 million of debt from the net cash proceeds received from the Jonah Assets Sale.

 

(m) In accordance with the plan of reorganization, on the Effective Date, all units of the Predecessor that were issued and outstanding immediately prior to the Effective Date were extinguished without recovery, and approximately 89.2 million shares of Class A common stock were issued. In addition, approximately 0.6 million restricted stock units were issued and vested on the Effective Date. These transactions were assumed to have occurred as of January 1, 2016.

 

8


LINN ENERGY, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS – Continued

 

Note 4 – Supplemental Oil and Natural Gas Reserve Information

The following tables set forth certain unaudited pro forma information concerning LINN Energy’s proved oil, natural gas and natural gas liquids (“NGL”) reserves for the year ended December 31, 2016, giving effect to the Jonah Assets Sale as if it had been completed as of January 1, 2016.

 

     Year Ended December 31, 2016  
     LINN
Energy

Historical
Natural Gas
(Bcf)
    LINN
Energy
Historical

Oil
(MMBbls)
    LINN
Energy
Historical

NGL
(MMBbls)
    LINN
Energy
Historical

Continuing
Operations

(Bcfe)
    Jonah
Assets Sale

(Bcfe)
    LINN
Energy

Pro Forma
Total (Bcfe)
 

Proved developed and undeveloped reserves:

            

Beginning of year

     2,231       103.4       97.3       3,435       (384     3,051  

Revisions of previous estimates

     (9     (4.3     0.9       (29     (11     (40

Extensions, discoveries and other additions

     265       10.1       15.2       417       (174     243  

Production

     (187     (10.0     (9.3     (303     56       (247
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

     2,300       99.2       104.1       3,520       (513     3,007  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proved developed reserves:

            

Beginning of year

     2,231       103.4       97.3       3,435       (384     3,051  

End of year

     2,128       93.3       94.4       3,254       (372     2,882  

Proved undeveloped reserves:

            

Beginning of year

     —         —         —         —         —         —    

End of year

     172       5.9       9.7       266       (141     125  

The following table sets forth the standardized measure of discounted future net cash flows relating to proved reserves as of December 31, 2016, giving effect to the Jonah Assets Sale. Future cash inflows are computed by applying applicable prices relating to the Company’s proved reserves to the year-end quantities of those reserves. Future production, development, site restoration and abandonment costs are derived based on costs assuming continuation of existing economic conditions. There are no future income tax expenses because the Predecessor was not subject to federal income taxes. Limited liability companies are subject to Texas margin tax; however, these amounts are not material.

 

     Year Ended December 31, 2016  
     LINN Energy
Historical
     Jonah Assets
Sale
     LINN Energy
Pro Forma
 
     (in thousands)  

Future estimated revenues

   $ 10,876,241      $ (1,391,832    $ 9,484,409  

Future estimated production costs

     (6,286,264      686,323        (5,599,941

Future estimated development costs

     (971,055      179,027        (792,028
  

 

 

    

 

 

    

 

 

 

Future net cash flows

     3,618,922        (526,482      3,092,440  

10% annual discount for estimated timing of cash flows

     (1,690,224      206,907        (1,483,317
  

 

 

    

 

 

    

 

 

 

Standardized measure of discounted future net cash flows – continuing operations

   $ 1,928,698      $ (319,575    $ 1,609,123  
  

 

 

    

 

 

    

 

 

 

Representative NYMEX prices: (1)

        

Natural gas (MMBtu)

   $ 2.48        

Oil (Bbl)

   $ 42.64        

 

(1) In accordance with SEC regulations, reserves were estimated using the average price during the 12-month period, determined as an unweighted average of the first-day-of-the-month price for each month, excluding escalations based upon future conditions. The average price used to estimate reserves is held constant over the life of the reserves.

 

9


LINN ENERGY, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS – Continued

 

The following table summarizes the principal sources of change in the standardized measure of discounted future net cash flows:

 

     Year Ended December 31, 2016  
     LINN Energy
Historical
     Jonah Assets
Sale
     LINN Energy
Pro Forma
 
     (in thousands)  

Sales and transfers of oil, natural gas and NGL produced during the period

   $ (400,243    $ 79,481      $ (320,762

Changes in estimated future development costs

     18,843        4,062        22,905  

Net change in sales and transfer prices and production costs related to future production

     (162,460      9,127        (153,333

Extensions, discoveries and improved recovery

     221,765        (70,550      151,215  

Net change due to revisions in quantity estimates

     (9,291      (19,480      (28,771

Accretion of discount

     203,817        (29,482      174,335  

Changes in production rates and other

     18,094        2,090        20,184  
  

 

 

    

 

 

    

 

 

 

Change – continuing operations

   $ (109,475    $ (24,752    $ (134,227
  

 

 

    

 

 

    

 

 

 

The data presented should not be viewed as representing the expected cash flow from, or current value of, existing proved reserves since the computations are based on a large number of estimates and assumptions. The required projection of production and related expenditures over time requires further estimates with respect to pipeline availability, rates of demand and governmental control. Actual future prices and costs are likely to be substantially different from the prices and costs utilized in the computation of reported amounts. Any analysis or evaluation of the reported amounts should give specific recognition to the computational methods utilized and the limitations inherent therein.

 

10