Linn Energy
LINN ENERGY, INC. (Form: 10-Q, Received: 08/03/2017 16:20:57)



 
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 June 30, 2017
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
LINNLOGOA19.JPG
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
¨
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
 
 
 
Smaller reporting company
x
 
 
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 July 31, 2017, there were 88,511,309 shares of Class A common stock, par value $0.001 per share, outstanding.
 



TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i

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.
Bcf. One billion cubic feet.
Bcfe. One billion cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
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)
 
Successor
 
 
Predecessor
 
June 30,
2017
 
 
December 31,
2016
(in thousands, except share and unit amounts)
 
 
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
16,903

 
 
$
694,857

Accounts receivable – trade, net
163,935

 
 
198,064

Derivative instruments
23,959

 
 

Restricted cash
98,616

 
 
1,602

Other current assets
71,836

 
 
105,310

Assets held for sale
236,421

 
 

Current assets of discontinued operations
235,643

 
 
701

Total current assets
847,313

 
 
1,000,534

 
 
 
 
 
Noncurrent assets:
 
 
 
 
Oil and natural gas properties (successful efforts method)
1,444,110

 
 
12,349,117

Less accumulated depletion and amortization
(37,572
)
 
 
(9,843,908
)
 
1,406,538

 
 
2,505,209

 
 
 
 
 
Other property and equipment
441,483

 
 
618,262

Less accumulated depreciation
(12,739
)
 
 
(217,724
)
 
428,744

 
 
400,538

 
 
 
 
 
Derivative instruments
12,759

 
 

Deferred income taxes
492,182

 
 

Other noncurrent assets
13,980

 
 
13,984

Noncurrent assets of discontinued operations

 
 
740,326

 
518,921

 
 
754,310

Total noncurrent assets
2,354,203

 
 
3,660,057

Total assets
$
3,201,516

 
 
$
4,660,591

 
 
 
 
 
LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued expenses
$
268,605

 
 
$
295,081

Derivative instruments
486

 
 
82,508

Current portion of long-term debt, net

 
 
1,937,729

Other accrued liabilities
135,416

 
 
25,979

Liabilities held for sale
36,387

 
 

Current liabilities of discontinued operations
28,218

 
 
321

Total current liabilities
469,112

 
 
2,341,618

 
 
 
 
 
Derivative instruments

 
 
11,349

Long-term debt
183,430

 
 

Other noncurrent liabilities
264,025

 
 
360,405

Noncurrent liabilities of discontinued operations

 
 
39,202

Liabilities subject to compromise

 
 
4,305,005

 
 
 
 
 

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


 
Successor
 
 
Predecessor
 
June 30,
2017
 
 
December 31,
2016
(in thousands, except share and unit amounts)
 
 
 
 
Commitments and contingencies (Note 10)


 
 


Temporary equity:
 
 
 
 
Redeemable noncontrolling interests
28,132

 
 

Stockholders’/unitholders’ equity (deficit):
 
 
 
 
Predecessor units issued and outstanding (no units issued or outstanding at June 30, 2017; 352,792,474 units issued and outstanding at December 31, 2016)

 
 
5,386,885

Predecessor accumulated deficit

 
 
(7,783,873
)
Successor preferred stock ($0.001 par value, 30,000,000 shares authorized and no shares issued at June 30, 2017; no shares authorized or issued at December 31, 2016)

 
 

Successor Class A common stock ($0.001 par value, 270,000,000 shares authorized and 89,241,558 shares issued at June 30, 2017; no shares authorized or issued at December 31, 2016)
89

 
 

Successor additional paid-in capital
2,043,927

 
 

Successor retained earnings
212,801

 
 

Total stockholders’/unitholders’ equity (deficit)
2,256,817

 
 
(2,396,988
)
Total liabilities and equity (deficit)
$
3,201,516

 
 
$
4,660,591

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

2

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


 
Successor
 
 
Predecessor
 
Three Months Ended June 30, 2017
 
 
Three Months Ended June 30, 2016
(in thousands, except per share and per unit amounts)
 
 
 
 
Revenues and other:
 
 
 
 
Oil, natural gas and natural gas liquids sales
$
243,167

 
 
$
195,847

Gains (losses) on oil and natural gas derivatives
45,714

 
 
(183,794
)
Marketing revenues
12,547

 
 
8,551

Other revenues
6,391

 
 
23,641

 
307,819

 
 
44,245

Expenses:
 
 
 
 
Lease operating expenses
71,057

 
 
70,367

Transportation expenses
37,388

 
 
41,092

Marketing expenses
6,976

 
 
6,727

General and administrative expenses
34,458

 
 
52,169

Exploration costs
811

 
 
48

Depreciation, depletion and amortization
51,987

 
 
86,358

Taxes, other than income taxes
17,871

 
 
18,180

(Gains) losses on sale of assets and other, net
(306,969
)
 
 
2,517

 
(86,421
)
 
 
277,458

Other income and (expenses):
 
 
 
 
Interest expense, net of amounts capitalized
(7,551
)
 
 
(50,320
)
Other, net
(1,163
)
 
 
(1,226
)
 
(8,714
)
 
 
(51,546
)
Reorganization items, net
(3,377
)
 
 
485,798

Income from continuing operations before income taxes
382,149

 
 
201,039

Income tax expense (benefit)
158,770

 
 
(3,652
)
Income from continuing operations
223,379

 
 
204,691

Income (loss) from discontinued operations, net of income taxes
(3,322
)
 
 
3,801

Net income
$
220,057

 
 
$
208,492

 
 
 
 
 
Income from continuing operations per share/unit – Basic
$
2.49

 
 
$
0.58

Income from continuing operations per share/unit – Diluted
$
2.47

 
 
$
0.58

 
 
 
 
 
Income (loss) from discontinued operations per share/unit – Basic
$
(0.04
)
 
 
$
0.01

Income (loss) from discontinued operations per share/unit – Diluted
$
(0.04
)
 
 
$
0.01

 
 
 
 
 
Net income per share/unit – Basic
$
2.45

 
 
$
0.59

Net income per share/unit – Diluted
$
2.43

 
 
$
0.59

 
 
 
 
 
Weighted average shares/units outstanding – Basic
89,849

 
 
352,789

Weighted average shares/units outstanding – Diluted
90,484

 
 
352,789

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


3

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


 
Successor
 
 
Predecessor
 
Four Months Ended June 30, 2017
 
 
Two Months Ended February 28, 2017
 
Six Months Ended June 30, 2016
(in thousands, except per share and per unit amounts)
 
 
 
 
 
 
Revenues and other:
 
 
 
 
 
 
Oil, natural gas and natural gas liquids sales
$
323,492

 
 
$
188,885

 
$
380,288

Gains (losses) on oil and natural gas derivatives
33,755

 
 
92,691

 
(74,341
)
Marketing revenues
15,461

 
 
6,636

 
17,612

Other revenues
8,419

 
 
9,915

 
51,947

 
381,127

 
 
298,127

 
375,506

Expenses:
 
 
 
 
 
 
Lease operating expenses
95,687

 
 
49,665

 
153,613

Transportation expenses
51,111

 
 
25,972

 
83,623

Marketing expenses
9,515

 
 
4,820

 
14,560

General and administrative expenses
44,869

 
 
71,745

 
135,889

Exploration costs
866

 
 
93

 
2,741

Depreciation, depletion and amortization
71,901

 
 
47,155

 
175,467

Impairment of long-lived assets

 
 

 
123,316

Taxes, other than income taxes
24,948

 
 
14,877

 
35,541

(Gains) losses on sale of assets and other, net
(306,524
)
 
 
672

 
3,786

 
(7,627
)
 
 
214,999

 
728,536

Other income and (expenses):
 
 
 
 
 
 
Interest expense, net of amounts capitalized
(11,751
)
 
 
(16,725
)
 
(134,193
)
Other, net
(1,551
)
 
 
(149
)
 
(1,158
)
 
(13,302
)
 
 
(16,874
)
 
(135,351
)
Reorganization items, net
(5,942
)
 
 
2,331,189

 
485,798

Income (loss) from continuing operations before income taxes
369,510

 
 
2,397,443

 
(2,583
)
Income tax expense (benefit)
153,455

 
 
(166
)
 
6,594

Income (loss) from continuing operations
216,055

 
 
2,397,609

 
(9,177
)
Loss from discontinued operations, net of income taxes
(3,254
)
 
 
(548
)
 
(1,130,077
)
Net income (loss)
$
212,801

 
 
$
2,397,061

 
$
(1,139,254
)
 
 
 
 
 
 
 
Income (loss) from continuing operations per share/unit – Basic
$
2.41

 
 
$
6.80

 
$
(0.02
)
Income (loss) from continuing operations per share/unit – Diluted
$
2.40

 
 
$
6.80

 
$
(0.02
)
 
 
 
 
 
 
 
Loss from discontinued operations per share/unit – Basic
$
(0.04
)
 
 
$
(0.01
)
 
$
(3.21
)
Loss from discontinued operations per share/unit – Diluted
$
(0.04
)
 
 
$
(0.01
)
 
$
(3.21
)
 
 
 
 
 
 
 
Net income (loss) per share/unit – Basic
$
2.37

 
 
$
6.79

 
$
(3.23
)
Net income (loss) per share/unit – Diluted
$
2.36

 
 
$
6.79

 
$
(3.23
)
 
 
 
 
 
 
 
Weighted average shares/units outstanding – Basic
89,849

 
 
352,792

 
352,511

Weighted average shares/units outstanding – Diluted
90,065

 
 
352,792

 
352,511

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 STATEMENT OF EQUITY (PREDECESSOR)
(Unaudited)
 
Units
 
Unitholders’ Capital
 
Accumulated Deficit
 
Total Unitholders’ Capital (Deficit)
 
(in thousands)
 
 
 
 
 
 
 
 
December 31, 2016 (Predecessor)
352,792

 
$
5,386,885

 
$
(7,783,873
)
 
$
(2,396,988
)
Net income
 
 

 
2,397,061

 
2,397,061

Other
 
 
(73
)
 

 
(73
)
February 28, 2017 (Predecessor)
352,792

 
5,386,812

 
(5,386,812
)
 

Cancellation of predecessor equity
(352,792
)
 
(5,386,812
)
 
5,386,812

 

February 28, 2017 (Predecessor)

 
$

 
$

 
$

CONDENSED CONSOLIDATED STATEMENT OF EQUITY (SUCCESSOR)
(Unaudited)
 
Class A Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
Issuances of successor Class A common stock
89,230

 
$
89

 
$
2,021,142

 
$

 
$
2,021,231

Share-based compensation expenses
 
 

 
13,750

 

 
13,750

February 28, 2017 (Successor)
89,230

 
89

 
2,034,892

 

 
2,034,981

Net income
 
 

 

 
212,801

 
212,801

Issuances of successor Class A common stock
12

 

 

 

 

Repurchases of successor Class A common stock

 

 
(230
)
 

 
(230
)
Share-based compensation expenses
 
 

 
9,454

 

 
9,454

Other
 
 

 
(189
)
 

 
(189
)
June 30, 2017  (Successor)
89,242

 
$
89

 
$
2,043,927

 
$
212,801

 
$
2,256,817

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
 
Four Months Ended June 30, 2017
 
 
Two Months Ended February 28, 2017
 
Six Months Ended June 30, 2016
(in thousands)
 
 
 
 
 
 
Cash flow from operating activities:
 
 
 
 
 
 
Net income (loss)
$
212,801

 
 
$
2,397,061

 
$
(1,139,254
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
 
 
Loss from discontinued operations
3,254

 
 
548

 
1,130,077

Depreciation, depletion and amortization
71,901

 
 
47,155

 
175,467

Impairment of long-lived assets

 
 

 
123,316

Deferred income taxes
131,055

 
 
(166
)
 
3,850

Noncash (gains) losses on oil and natural gas derivatives
(25,826
)
 
 
(104,263
)
 
931,251

Share-based compensation expenses
19,599

 
 
50,255

 
18,553

Amortization and write-off of deferred financing fees
82

 
 
1,338

 
9,227

(Gains) losses on sale of assets and other, net
(293,811
)
 
 
1,069

 
3,929

Reorganization items, net

 
 
(2,359,364
)
 
(498,954
)
Changes in assets and liabilities:
 
 
 
 
 
 
(Increase) decrease in accounts receivable – trade, net
27,212

 
 
(7,216
)
 
(12,046
)
(Increase) decrease in other assets
(1,245
)
 
 
402

 
(19,039
)
Increase in restricted cash

 
 
(80,164
)
 

Increase (decrease) in accounts payable and accrued expenses
(49,984
)
 
 
20,949

 
47,062

Increase in other liabilities
22,421

 
 
2,801

 
26,150

Net cash provided by (used in) operating activities – continuing operations
117,459

 
 
(29,595
)
 
799,589

Net cash provided by operating activities – discontinued operations
13,966

 
 
8,781

 
1,612

Net cash provided by (used in) operating activities
131,425

 
 
(20,814
)
 
801,201

 
 
 
 
 
 
 
Cash flow from investing activities:
 
 
 
 
 
 
Development of oil and natural gas properties
(61,534
)
 
 
(50,597
)
 
(80,909
)
Purchases of other property and equipment
(27,287
)
 
 
(7,409
)
 
(13,655
)
Proceeds from sale of properties and equipment and other
641,219

 
 
(166
)
 
(2,713
)
Net cash provided by (used in) investing activities – continuing operations
552,398

 
 
(58,172
)
 
(97,277
)
Net cash provided by (used in) investing activities – discontinued operations
(1,645
)
 
 
(584
)
 
26,166

Net cash provided by (used in) investing activities
550,753

 
 
(58,756
)
 
(71,111
)
 
 
 
 
 
 
 

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

 
Successor
 
 
Predecessor
 
Four Months Ended June 30, 2017
 
 
Two Months Ended February 28, 2017
 
Six Months Ended June 30, 2016
(in thousands)
 
 
 
 
 
 
Cash flow from financing activities:
 
 
 
 
 
 
Proceeds from rights offerings, net

 
 
514,069

 

Proceeds from borrowings
160,000

 
 

 
978,500

Repayments of debt
(876,570
)
 
 
(1,038,986
)
 
(913,210
)
Debt issuance costs paid
(2,973
)
 
 

 
(623
)
Payment to holders of claims under the second lien notes

 
 
(30,000
)
 

Other
(87
)
 
 
(6,015
)
 
(20,687
)
Net cash provided by (used in) financing activities – continuing operations
(719,630
)
 
 
(560,932
)
 
43,980

Net cash used in financing activities – discontinued operations

 
 

 
(1,593
)
Net cash provided by (used in) financing activities
(719,630
)
 
 
(560,932
)
 
42,387

 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(37,452
)
 
 
(640,502
)
 
772,477

Cash and cash equivalents:
 
 
 
 
 
 
Beginning
54,355

 
 
694,857

 
2,168

Ending
16,903

 
 
54,355

 
774,645

Less cash and cash equivalents of discontinued operations at end of period

 
 

 
(15,008
)
Ending – continuing operations
$
16,903

 
 
$
54,355

 
$
759,637

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. (formerly known as Linn Energy, LLC) (“Successor,” “LINN Energy” or the “Company”), 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 (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 (see Note 4). The reference to “LinnCo” herein refers to LinnCo, LLC, 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 seven operating regions in the United States (“U.S.”), in the Rockies, the Hugoton Basin, the Mid-Continent, east Texas and north Louisiana (“TexLa”), the Permian Basin, Michigan/Illinois and south Texas. In July 2017, the Company divested all of its properties located in California.
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 (“SEC”) 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, 2016. 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 wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation. Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method. Redeemable noncontrolling interests on the condensed consolidated balance sheet as of June 30, 2017, relate to the noncontrolling Class B unitholders of the Company’s subsidiary, Linn Energy Holdco LLC (“Holdco”). See Note 12 and Note 17 for additional information.
The condensed consolidated financial statements for previous periods include certain reclassifications that were made to conform to current presentation. In addition, the Company has classified the assets and liabilities of its California properties, as

8

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

well as the results of operations and cash flows of its California properties and Berry, as discontinued operations on its condensed consolidated financial statements. Such reclassifications have no impact on previously reported net income (loss), stockholders’/unitholders’ equity (deficit) or cash flows. See Note 4 for additional information.
Bankruptcy Accounting
The condensed consolidated financial statements have been prepared as if the Company will continue as a going concern and reflect the application of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”). ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in “reorganization items, net” on the Company’s condensed consolidated statements of operations. In addition, prepetition unsecured and under-secured obligations that may be impacted by the bankruptcy reorganization process have been classified as “liabilities subject to compromise” on the Company’s condensed consolidated balance sheet at December 31, 2016. These liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court, although they may be settled for less.
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 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. See Note 3 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, fair values of commodity derivatives and fair values of assets acquired and liabilities assumed. 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 Issued 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. This ASU will be applied retrospectively as of the date of adoption and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal 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 adoption of this ASU is expected to result 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 statements of cash flows.

9

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

In March 2016, the FASB issued an ASU that is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company adopted this ASU on January 1, 2017. The adoption of this ASU had no impact on the Company’s historical financial statements or related disclosures. Upon adoption and subsequently this ASU will result in excess tax benefits, which were previously recorded in equity on the balance sheets and classified as financing activities on the statements of cash flows, being recorded in the statements of operations and classified as operating activities on the statements of cash flows. Additionally, the Company elected to begin accounting for forfeitures as they occur.
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.
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. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years (early adoption permitted for fiscal years beginning after December 15, 2016, including interim periods within that year). The Company does not plan to early adopt this ASU. The Company is currently evaluating the impact of the adoption of this ASU on its financial statements and related disclosures. The Company expects to use the cumulative-effect transition method, has completed an initial review of its contracts and is developing accounting policies to address the provisions of the ASU, but has not finalized any estimates of the potential impacts.
Note 2 – Emergence From Voluntary Reorganization Under Chapter 11
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.
Plan of Reorganization
In accordance with the Plan, on the Effective Date:
The Predecessor transferred all of its assets, including equity interests in its subsidiaries, other than LAC and Berry, to Linn Energy Holdco II LLC (“Holdco II”), a newly formed subsidiary of the Predecessor and the borrower under the Credit Agreement (as amended, the “Successor Credit Facility”) entered into in connection with the reorganization, in exchange for 100% of the equity of Holdco II and the issuance of interests in the Successor Credit Facility to certain of the Predecessor’s creditors in partial satisfaction of their claims (the “Contribution”). Immediately following the Contribution, the Predecessor transferred 100% of the equity interests in Holdco II to the Successor in exchange for approximately $530 million in cash and an amount of equity securities in the Successor not to exceed 49.90% of the

10

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

outstanding equity interests of the Successor, which the Predecessor distributed to certain of its creditors in satisfaction of their claims. Contemporaneously with the reorganization transactions and pursuant to the Plan, (i) LAC assigned all of its rights, title and interest in the membership interests of Berry to Berry Petroleum Corporation, (ii) all of the equity interests in LAC and the Predecessor were canceled and (iii) LAC and the Predecessor commenced liquidation, which is expected to be completed following the resolution of the respective companies’ outstanding claims.
The holders of claims under the Predecessor’s Sixth Amended and Restated Credit Agreement (“Predecessor Credit Facility”) received a full recovery, consisting of a cash paydown and their pro rata share of the $1.7 billion Successor Credit Facility. As a result, all outstanding obligations under the Predecessor Credit Facility were canceled.
Holdco II, as borrower, entered into the Successor Credit Facility with the holders of claims under the Predecessor Credit Facility, as lenders, and Wells Fargo Bank, National Association, as administrative agent, providing for a new reserve-based revolving loan with up to $1.4 billion in borrowing commitments and a new term loan in an original principal amount of $300 million . For additional information about the Successor Credit Facility, see Note 6.
The holders of the Company’s 12.00% senior secured second lien notes due December 2020 (the “Second Lien Notes”) received their pro rata share of (i)  17,678,889 shares of Class A common stock; (ii) certain rights to purchase shares of Class A common stock in the rights offerings, as described below; and (iii)  $30 million in cash. The holders of the Company’s 6.50% senior notes due May 2019, 6.25% senior notes due November 2019, 8.625% senior notes due 2020, 7.75% senior notes due February 2021 and 6.50% senior notes due September 2021 (collectively, the “Unsecured Notes”) received their pro rata share of (i)  26,724,396 shares of Class A common stock; and (ii) certain rights to purchase shares of Class A common stock in the rights offerings, as described below. As a result, all outstanding obligations under the Second Lien Notes and the Unsecured Notes and the indentures governing such obligations were canceled.
The holders of general unsecured claims (other than claims relating to the Second Lien Notes and the Unsecured Notes) against the LINN Debtors (the “LINN Unsecured Claims”) received their pro rata share of cash from two cash distribution pools totaling $40 million , as divided between a $2.3 million cash distribution pool for the payment in full of allowed LINN Unsecured Claims in an amount equal to $2,500 or less (and larger claims for which the holders irrevocably agreed to reduce such claims to $2,500 ), and a $37.7 million cash distribution pool for pro rata distributions to all remaining allowed general LINN Unsecured Claims. As a result, all outstanding LINN Unsecured Claims were fully satisfied, settled, released and discharged as of the Effective Date.
All units of the Predecessor that were issued and outstanding immediately prior to the Effective Date were extinguished without recovery. On the Effective Date, the Successor issued in the aggregate 89,229,892 shares of Class A common stock. No cash was raised from the issuance of the Class A common stock on account of claims held by the Predecessor’s creditors.
The Successor entered into a registration rights agreement with certain parties, pursuant to which the Company agreed to, among other things, file a registration statement with the SEC within 60 days of the Effective Date covering the offer and resale of “Registrable Securities” (as defined therein).
By operation of the Plan and the Confirmation Order, the terms of the Predecessor’s board of directors expired as of the Effective Date. The Successor formed a new board of directors, consisting of the Chief Executive Officer of the Predecessor, one director selected by the Successor and five directors selected by a six-person selection committee.
Rights Offerings
On October 25, 2016, the Company entered into a backstop commitment agreement (“Backstop Commitment Agreement”) with the parties thereto (collectively, the “Backstop Parties”). In accordance with the Plan, the Backstop Commitment Agreement and the rights offerings procedures filed in the Chapter 11 cases and approved by the Bankruptcy Court, the LINN Debtors offered eligible creditors the right to purchase Class A common stock upon emergence from the Chapter 11 cases for an aggregate purchase price of $530 million .

11

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

Under the Backstop Commitment Agreement, certain Backstop Parties agreed to purchase their pro rata share of the shares that were not duly subscribed to pursuant to the offerings at the discounted per share price set forth in the Backstop Commitment Agreement by parties other than Backstop Parties (the “Backstop Commitment”). Pursuant to the Backstop Commitment Agreement, the LINN Debtors agreed to pay the Backstop Parties on the Effective Date a commitment premium equal to 4.0% of the $530 million committed amount (the “Backstop Commitment Premium”), of which 3.0% was paid in cash and 1.0% was paid in the form of Class A common stock at the discounted per share price set forth in the Backstop Commitment Agreement.
On the Effective Date, all conditions to the rights offerings and the Backstop Commitment Agreement were met, and the LINN Debtors completed the rights offerings and the related issuances of Class A common stock.
Liabilities Subject to Compromise
The Predecessor’s condensed consolidated balance sheet as of December 31, 2016, includes amounts classified as “liabilities subject to compromise,” which represent prepetition liabilities that were allowed, or that the Company estimated would be allowed, as claims in its Chapter 11 cases. The following table summarizes the components of liabilities subject to compromise included on the condensed consolidated balance sheet:
 
Predecessor
 
December 31, 2016
 
(in thousands)
 
 
Accounts payable and accrued expenses
$
137,692

Accrued interest payable
144,184

Debt
4,023,129

Liabilities subject to compromise
$
4,305,005

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 tables summarize the components of reorganization items included on the condensed consolidated statements of operations:
 
Successor
 
 
Predecessor
 
Three Months Ended June 30, 2017
 
 
Three Months Ended June 30, 2016
(in thousands)
 
 
 
 
Legal and other professional advisory fees
$
(3,446
)
 
 
$
(13,451
)
Unamortized deferred financing fees, discounts and premiums

 
 
(52,045
)
Gain related to interest payable on Predecessor’s Second Lien Notes

 
 
551,000

Other
69

 
 
294

Reorganization items, net
$
(3,377
)
 
 
$
485,798




12

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

 
Successor
 
 
Predecessor
 
Four Months Ended June 30, 2017
 
 
Two Months Ended February 28, 2017
 
Six Months Ended June 30, 2016
(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 advisory fees
(6,016
)
 
 
(46,961
)
 
(13,451
)
Unamortized deferred financing fees, discounts and premiums

 
 

 
(52,045
)
Gain related to interest payable on Predecessor’s Second Lien Notes

 
 

 
551,000

Terminated contracts

 
 
(6,915
)
 

Other
74

 
 
(13,049
)
 
294

Reorganization items, net
$
(5,942
)
 
 
$
2,331,189

 
$
485,798


Note 3 – Fresh Start Accounting
Upon the Company’s emergence from Chapter 11 bankruptcy, it adopted fresh start accounting in accordance with the provisions of 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.
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” (“ASC 805”). The amount of deferred income taxes recorded was determined in accordance with ASC 740 “Income Taxes” (“ASC 740”). 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.
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 as of and 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. The Company’s financial results for future periods following the application of fresh start accounting will be different from historical trends and the differences may be material.

13

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

Reorganization Value
Under ASC 852, the Successor determined a value to be assigned to the equity of the emerging entity as of the date of adoption of fresh start accounting. The Plan confirmed by the Bankruptcy Court estimated an enterprise value of $2.35 billion . The Plan enterprise value was prepared using an asset based methodology, as discussed further below. The enterprise value was then adjusted to determine the equity value of the Successor of approximately $2.03 billion . Adjustments to determine the equity value are presented below (in thousands):
Plan confirmed enterprise value
$
2,350,000

Fair value of debt
(900,000
)
Fair value of subsequently determined tax attributes
621,486

Fair value of vested Class B units
(36,505
)
Value of Successor’s stockholders’ equity
$
2,034,981

The subsequently determined tax attributes were primarily the result of the conversion from a limited liability company to a C corporation and differences in the accounting basis and tax basis of the Company’s oil and natural gas properties as of the Effective Date. The Class B units are incentive interest awards that were granted on the Effective Date by Holdco to certain members of its management (see Note 12), and the associated fair value was recorded as a liability of approximately $7 million in “other accrued liabilities” and temporary equity of approximately $29 million in “redeemable noncontrolling interests” on the condensed consolidated balance sheet at February 28, 2017.
The Company's principal assets are its oil and natural gas properties. The fair values of oil and natural gas properties were estimated using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital 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 underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with New York Mercantile Exchange (“NYMEX”) forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that Company management believes will impact realizable prices.
See below under “Fresh Start Adjustments” for additional information regarding assumptions used in the valuation of the Company's various other significant assets and liabilities.
Condensed Consolidated Balance Sheet
The adjustments included in the following fresh start condensed consolidated balance sheet reflect the effects of the transactions contemplated by the Plan and executed by the Company on the Effective Date (reflected in the column “Reorganization Adjustments”) as well as fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine the fair values and significant assumptions.


14

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

 
As of February 28, 2017
 
Predecessor
 
Reorganization Adjustments (1)
 
 
Fresh Start Adjustments
 
 
Successor
 
(in thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
734,166

 
$
(679,811
)
(2)  
 
$

 
 
$
54,355

Accounts receivable – trade, net
212,099

 

 
 
(7,808
)
(16)  
 
204,291

Derivative instruments
15,391

 

 
 

 
 
15,391

Restricted cash
1,602

 
80,164

(3)  
 

 
 
81,766

Other current assets
106,426

 
(15,983
)
(4)  
 
1,780

(17)  
 
92,223

Total current assets
1,069,684

 
(615,630
)
 
 
(6,028
)
 
 
448,026

 
 
 
 
 
 
 
 
 
 
Noncurrent assets:
 
 
 
 
 
 
 
 
 
Oil and natural gas properties (successful efforts method)
13,269,035

 

 
 
(11,082,258
)
(18)  
 
2,186,777

Less accumulated depletion and amortization
(10,044,240
)
 

 
 
10,044,240

(18)  
 

 
3,224,795

 

 
 
(1,038,018
)
 
 
2,186,777

 
 
 
 
 
 
 
 
 
 
Other property and equipment
641,586

 

 
 
(197,653
)
(19)  
 
443,933

Less accumulated depreciation
(230,952
)
 

 
 
230,952

(19)  
 

 
410,634

 

 
 
33,299

 
 
443,933

 
 
 
 
 
 
 
 
 
 
Derivative instruments
4,492

 

 
 

 
 
4,492

Deferred income taxes

 
264,889

(5)  
 
356,597

(5)  
 
621,486

Other noncurrent assets
15,003

 
151

(6)  
 
8,139

(20)  
 
23,293

 
19,495

 
265,040

 
 
364,736

 
 
649,271

Total noncurrent assets
3,654,924

 
265,040

 
 
(639,983
)
 
 
3,279,981

Total assets
$
4,724,608

 
$
(350,590
)
 
 
$
(646,011
)
 
 
$
3,728,007

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
324,585

 
$
41,266

(7)  
 
$
(2,351
)
(21)  
 
$
363,500

Derivative instruments
7,361

 

 
 

 
 
7,361

Current portion of long-term debt, net
1,937,822

 
(1,912,822
)
(8)  
 

 
 
25,000

Other accrued liabilities
41,251

 
(1,026
)
(9)  
 
1,104

(22)  
 
41,329

Total current liabilities
2,311,019

 
(1,872,582
)
 
 
(1,247
)
 
 
437,190

 
 
 
 
 
 
 
 
 
 
Derivative instruments
2,116

 

 
 

 
 
2,116

Long-term debt

 
875,000

(10)  
 

 
 
875,000

Other noncurrent liabilities
402,776

 
(167
)
(11)  
 
(53,239
)
(23)  
 
349,370

Liabilities subject to compromise
4,301,912

 
(4,301,912
)
(12)  
 

 
 

 
 
 
 
 
 
 
 
 
 
Temporary equity:
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests

 
29,350

(13)  
 

 
 
29,350


15

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

 
As of February 28, 2017
 
Predecessor
 
Reorganization Adjustments (1)
 
 
Fresh Start Adjustments
 
 
Successor
Stockholders’/unitholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
Predecessor units issued and outstanding
5,386,812

 
(5,386,812
)
(14)  
 

 
 

Predecessor accumulated deficit
(7,680,027
)
 
2,884,740

(15)  
 
4,795,287

(24)  
 

Successor Class A common stock

 
89

(14)  
 

 
 
89

Successor additional paid-in capital

 
7,421,704

(14)  
 
(5,386,812
)
(24)  
 
2,034,892

Successor retained earnings

 

 
 

 
 

Total stockholders’/unitholders’ equity (deficit)
(2,293,215
)
 
4,919,721

 
 
(591,525
)
 
 
2,034,981

Total liabilities and equity (deficit)
$
4,724,608

 
$
(350,590
)
 
 
$
(646,011
)
 
 
$
3,728,007

Reorganization Adjustments:
1)
Represent amounts recorded as of the Effective Date for the implementation of the Plan, including, among other items, settlement of the Predecessor’s liabilities subject to compromise, repayment of certain of the Predecessor’s debt, cancellation of the Predecessor’s equity, issuances of the Successor’s Class A common stock, proceeds received from the Successor’s rights offerings and issuance of the Successor’s debt.
2)
Changes in cash and cash equivalents included the following:
(in thousands)
 
Borrowings under the Successor’s revolving loan
$
600,000

Borrowings under the Successor’s term loan
300,000

Proceeds from rights offerings
530,019

Removal of restriction on cash balance
1,602

Payment to holders of claims under the Predecessor Credit Facility
(1,947,357
)
Payment to holders of claims under the Second Lien Notes
(30,000
)
Payment of Berry’s ad valorem taxes
(23,366
)
Payment of the rights offerings backstop commitment premium
(15,900
)
Payment of professional fees
(13,043
)
Funding of the professional fees escrow account
(41,766
)
Funding of the general unsecured claims cash distribution pool
(40,000
)
Changes in cash and cash equivalents
$
(679,811
)
3)
Primarily reflects the transfer to restricted cash to fund the Predecessor’s professional fees escrow account and general unsecured claims cash distribution pool.
4)
Primarily reflects the write-off of the Predecessor’s deferred financing fees.
5)
Reflects deferred tax assets recorded as of the Effective Date as determined in accordance with ASC 740. The deferred tax assets were primarily the result of the conversion from a limited liability company to a C corporation and differences in the accounting basis and tax basis of the Company’s oil and natural gas properties as of the Effective Date.
6)
Reflects the capitalization of deferred financing fees related to the Successor’s revolving loan.

16

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

7)
Net increase in accounts payable and accrued expenses reflects:
(in thousands)
 
Recognition of payables for the professional fees escrow account
$
41,766

Recognition of payables for the general unsecured claims cash distribution pool
40,000

Payment of professional fees
(17,130
)
Payment of Berry’s ad valorem taxes
(23,366
)
Other
(4
)
Net increase in accounts payable and accrued expenses
$
41,266

8)
Reflects the settlement of the Predecessor Credit Facility through repayment of approximately $1.9 billion , net of the write-off of deferred financing fees and an increase of $25 million for the current portion of the Successor’s term loan.
9)
Reflects a decrease of approximately $8 million for the payment of accrued interest on the Predecessor Credit Facility partially offset by an increase of approximately $7 million related to noncash share-based compensation classified as a liability related to the incentive interest awards issued by Holdco to certain members of its management (see Note 12).
10)
Reflects borrowings of $900 million under the Successor Credit Facility, which includes a $600 million revolving loan and a $300 million term loan, net of $25 million for the current portion of the Successor’s term loan.
11)
Reflects a reduction in deferred tax liabilities as determined in accordance with ASC 740.
12)
Settlement of liabilities subject to compromise and the resulting net gain were determined as follows:
(in thousands)
 
Accounts payable and accrued expenses
$
134,599

Accrued interest payable
144,184

Debt
4,023,129

Total liabilities subject to compromise
4,301,912

Recognition of an additional claim for the Predecessor’s Second Lien Notes settlement
1,000,000

Funding of the general unsecured claims cash distribution pool
(40,000
)
Payment to holders of claims under the Second Lien Notes
(30,000
)
Issuance of Class A common stock to creditors
(1,507,162
)
Gain on settlement of liabilities subject to compromise
$
3,724,750

13)
Reflects redeemable noncontrolling interests classified as temporary equity related to the incentive interest awards issued by Holdco to certain members of its management. See Note 12 and Note 17 for additional information.

17

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

14)
Net increase in capital accounts reflects:
(in thousands)
 
Issuance of Class A common stock to creditors
$
1,507,162

Issuance of Class A common stock pursuant to the rights offerings
530,019

Payment of the rights offerings backstop commitment premium
(15,900
)
Payment of issuance costs
(50
)
Share-based compensation expenses
13,750

Cancellation of the Predecessor’s units issued and outstanding
5,386,812

Par value of Class A common stock
(89
)
Change in additional paid-in capital
7,421,704

Par value of Class A common stock
89

Predecessor’s units issued and outstanding
(5,386,812
)
Net increase in capital accounts
$
2,034,981

See Note 11 for additional information on the issuances of the Successor’s equity.
15)
Net decrease in accumulated deficit reflects:
(in thousands)
 
Recognition of 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
)
Recognition of professional fees
(37,680
)
Write-off of deferred financing fees
(16,728
)
Recognition of deferred income taxes
264,889

Total reorganization items, net
2,935,231

Share-based compensation expenses
(50,255
)
Other
(236
)
Net decrease in accumulated deficit
$
2,884,740

Fresh Start Adjustments:
16)
Reflects a change in accounting policy from the entitlements method to the sales method for natural gas production imbalances.
17)
Reflects the recognition of intangible assets for the current portion of favorable leases, partially offset by decreases for well equipment inventory and the write-off of historical intangible assets.

18

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

18)
Reflects a decrease of oil and natural gas properties, based on the methodology discussed above, and the elimination of accumulated depletion and amortization. The following table summarizes the components of oil and natural gas properties as of the Effective Date:
 
Successor
 
 
Predecessor
 
Fair Value
 
 
Historical Book Value
(in thousands)
 
 
 
 
Proved properties
$
2,186,777

 
 
$
12,258,835

Unproved properties

 
 
1,010,200

 
2,186,777

 
 
13,269,035

Less accumulated depletion and amortization

 
 
(10,044,240
)
 
$
2,186,777

 
 
$
3,224,795

19)
Reflects a decrease of other property and equipment and the elimination of accumulated depreciation. The following table summarizes the components of other property and equipment as of the Effective Date:
 
Successor
 
 
Predecessor
 
Fair Value
 
 
Historical Book Value
(in thousands)
 
 
 
 
Natural gas plants and pipelines
$
342,924

 
 
$
426,914

Office equipment and furniture
39,211

 
 
106,059

Buildings and leasehold improvements
32,817

 
 
66,023

Vehicles
16,980

 
 
30,760

Land
7,747

 
 
3,727

Drilling and other equipment
4,254

 
 
8,103

 
443,933

 
 
641,586

Less accumulated depreciation

 
 
(230,952
)
 
$
443,933

 
 
$
410,634

In estimating the fair value of other property and equipment, the Company used a combination of cost and market approaches. A cost approach was used to value the Company’s natural gas plants and pipelines and other operating assets, based on current replacement costs of the assets less depreciation based on the estimated economic useful lives of the assets and age of the assets. A market approach was used to value the Company’s vehicles and land, using recent transactions of similar assets to determine the fair value from a market participant perspective.
20)
Reflects the recognition of intangible assets for the noncurrent portion of favorable leases, as well as increases in equity method investments and carbon credit allowances. Assets and liabilities for out-of-market contracts were valued based on market terms as of February 28, 2017, and will be amortized over the remaining life of the respective lease. The Company’s equity method investments were valued based on a market approach using a market EBITDA multiple. Carbon credit allowances were valued using a market approach based on trading prices for carbon credits on February 28, 2017.
21)
Primarily reflects the write-off of deferred rent partially offset by an increase in carbon emissions liabilities.
22)
Reflects an increase of the current portion of asset retirement obligations.
23)
Primarily reflects a decrease of approximately $49 million for asset retirement obligations and approximately $5 million for deferred rent, partially offset by an increase of approximately $1 million for carbon emissions liabilities. The fair value

19

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

of asset retirement obligations were 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. Carbon emissions liabilities were valued using a market approach based on trading prices for carbon credits on February 28, 2017.
24)
Reflects the cumulative impact of the fresh start accounting adjustments discussed above and the elimination of the Predecessor’s accumulated deficit.
Note 4 – Discontinued Operations, Other Divestitures and Joint Venture
Discontinued Operations
On July 31, 2017, the Company completed the sale of its interest in properties located in the San Joaquin Basin in California to Berry Petroleum Company, LLC (the “San Joaquin Basin Sale”) and received cash proceeds of approximately $257 million .
On July 21, 2017, the Company completed the sale of its interest in properties located in the Los Angeles Basin in California to Bridge Energy LLC (the “Los Angeles Basin Sale”) and received cash proceeds of approximately $94 million . The Company will receive an additional $7 million contingent payment if certain operational requirements are satisfied within one year.
As a result of the Company’s strategic exit from California (completed by the San Joaquin Basin Sale and Los Angeles Basin Sale), the Company classified the assets and liabilities, results of operations and cash flows of its California properties as discontinued operations on its condensed consolidated financial statements.
On December 3, 2016, LINN Energy filed an amended plan of reorganization that excluded Berry (see Note 2). 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 and classified it as discontinued operations.
The following table presents carrying amounts of the assets and liabilities of the Company’s California properties classified as discontinued operations on the condensed consolidated balance sheets:
 
Successor
 
 
Predecessor
 
June 30, 2017
 
 
December 31, 2016
(in thousands)
 
 
 
 
Assets:
 
 
 
 
Oil and natural gas properties
$
213,442

 
 
$
728,190

Other property and equipment
11,339

 
 
11,402

Other
10,862

 
 
1,435

Total assets of discontinued operations
$
235,643

 
 
$
741,027

Liabilities:
 
 
 
 
Asset retirement obligations
$
26,774

 
 
$
38,042

Other
1,444

 
 
1,481

Total liabilities of discontinued operations
$
28,218

 
 
$
39,523

All balances of discontinued operations on the condensed consolidated balance sheets relate to the Company’s California properties, as Berry was deconsolidated effective December 3, 2016. At June 30, 2017 , the carrying values of the California properties were reduced to fair value less costs to sell, resulting in an impairment charge of approximately $13 million for the three months and four months ended June 30, 2017 . The impairment charge is included in “income (loss) from discontinued

20

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

operations, net of income taxes” on the condensed consolidated statements of operations. Other assets primarily include restricted cash and inventories, and other liabilities primarily include carbon emissions liabilities. All assets and liabilities related to the California properties were classified as current on the condensed consolidated balance sheet as of June 30, 2017 .
The following tables present summarized financial results of the Company’s California properties and Berry classified as discontinued operations on the condensed consolidated statements of operations:
 
Successor
 
 
Predecessor
 
Three Months Ended June 30, 2017
 
 
Three Months Ended June 30, 2016
(in thousands)
 
 
 
 
Revenues and other
$
20,511

 
 
$
129,245

Expenses
25,935

 
 
156,176

Other income and (expenses)
(2,074
)
 
 
(18,190
)
Reorganization items, net

 
 
49,086

Income (loss) from discontinued operations before income taxes
(7,498
)
 
 
3,965

Income tax expense (benefit)
(4,176
)
 
 
164

Income (loss) from discontinued operations, net of income taxes
$
(3,322
)
 
 
$
3,801


 
Successor
 
 
Predecessor
 
Four Months Ended June 30, 2017
 
 
Two Months Ended February 28, 2017
 
Six Months Ended June 30, 2016
(in thousands)
 
 
 
 
 
 
Revenues and other
$
27,636

 
 
$
14,891

 
$
235,949

Expenses
30,344

 
 
13,758

 
1,375,480

Other income and (expenses)
(2,791
)
 
 
(1,681
)
 
(39,470
)
Reorganization items, net

 
 

 
49,086

Loss from discontinued operations before income taxes
(5,499
)
 
 
(548
)
 
(1,129,915
)
Income tax expense (benefit)
(2,245
)
 
 

 
162

Loss from discontinued operations, net of income taxes
$
(3,254
)
 
 
$
(548
)
 
$
(1,130,077
)
Results of operations of Berry are only included in the three months and six months ended June 30, 2016 , as Berry was deconsolidated effective December 3, 2016. Other income and (expenses) include an allocation of interest expense for the California properties of approximately $2 million for each of the three months ended June 30, 2017 , and June 30, 2016 , and approximately $3 million , $2 million and $3 million for the four months ended June 30, 2017 , the two months ended February 28, 2017, and the six months ended June 30, 2016 , respectively, which represents interest on debt that was required to be repaid as a result of the sales.
Berry Transition Services and Separation Agreement
On the Effective Date, Berry entered into a Transition Services and Separation Agreement (the “TSSA”) with LINN Energy and certain of its subsidiaries to facilitate the separation of Berry’s operations from LINN Energy’s operations. Pursuant to the TSSA, LINN Energy continued to provide, or caused to be provided, certain administrative, management, operating, and other services and support to Berry during a transitional period following the Effective Date (the “Transition Services”).

21

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

Under the TSSA, Berry reimbursed LINN Energy for any and all reasonable, third-party out-of-pocket costs and expenses, without markup, actually incurred by LINN Energy, to the extent documented, in connection with providing the Transition Services. Additionally, Berry paid to LINN Energy a management fee of $6 million per month, prorated for partial months, during the period from the Effective Date through the last day of the second full calendar month after the Effective Date (the “Transition Period”) and paid $2.7 million per month, prorated for partial months, from the first day following the Transition Period through the last day of the second full calendar month thereafter (the “Accounting Period”). During the Accounting Period, the scope of the Transition Services was reduced to specified accounting and administrative functions. The Transition Period ended April 30, 2017, and the Accounting Period ended June 30, 2017 .
Other Divestitures
On June 30, 2017 , the Company completed the sale of its interest in properties located in the Salt Creek Field in Wyoming to Denbury Resources Inc. (the “Salt Creek Assets Sale”). Cash proceeds received from the sale of these properties were approximately $76 million and the Company recognized a net gain of approximately $22 million .
On May 31, 2017, the Company completed the sale of its interest in properties located in western Wyoming to Jonah Energy LLC (the “Jonah Assets Sale”). Cash proceeds received from the sale of these properties were approximately $560 million , net of costs to sell of approximately $6 million , and the Company recognized a net gain of approximately $279 million .
On May 9, 2017, the Company completed the sale of undeveloped acreage located in Ward County, Texas and received cash proceeds of approximately $4 million .
The three 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 statements of operations.
Divestitures – Subsequent Events
On August 1, 2017, and July 31, 2017, the Company completed the sales of its interest in certain properties located in south Texas (the “South Texas Assets Sales”) related to definitive purchase and sale agreements entered into in June 2017 and received cash proceeds of approximately $9 million and approximately $23 million , respectively.
On July 28, 2017, the Company completed the sale of undeveloped acreage located in Lea and Eddy counties in New Mexico (the “Permian Acreage Sale”) related to a definitive purchase and sale agreement entered into in June 2017 and received cash proceeds of approximately $21 million .
Joint Venture – Pending
On June 27, 2017, the Company, through certain of its wholly owned subsidiaries, entered into an agreement with Citizen Energy II, LLC (“Citizen”) in which LINN Energy and Citizen will each contribute certain upstream assets located in Oklahoma to a newly formed company, Roan Resources LLC (“Roan”), focused on the accelerated development of the Merge/SCOOP/STACK play in the Mid-Continent region. In exchange for their respective contributions, LINN Energy and Citizen will equally split the equity interest in Roan. The transaction is anticipated to close in the third quarter of 2017, subject to closing conditions. There can be no assurance that all of the conditions to closing will be satisfied.
Assets and Liabilities Held For Sale
The assets and liabilities associated with the South Texas Assets Sales and the Permian Acreage Sale, as well as the properties to be contributed in the pending Roan joint venture, are classified as “held for sale” on the condensed consolidated balance sheet. At June 30, 2017, the Company’s condensed consolidated balance sheet included current assets of approximately $236 million included in “assets held for sale” and current liabilities of approximately $36 million included in “liabilities held for sale” related to these transactions.

22

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

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 sheet:
 
Successor
 
June 30, 2017
 
(in thousands)
 
 
Assets:
 
Oil and natural gas properties
$
224,918

Other property and equipment
11,070

Other
433

Total assets held for sale
$
236,421

Liabilities:
 
Asset retirement obligations
$
21,210

Other
15,177

Total liabilities held for sale
$
36,387

Other assets primarily include inventories and other liabilities primarily include accounts payable.
Note 5 – Oil and Natural Gas Properties
Oil and Natural Gas Capitalized Costs
As a result of the application of fresh start accounting, the Company recorded its oil and natural gas properties at fair value as of the Effective Date. The fair values of oil and natural gas properties are estimated using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of proved and unproved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital 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 fair value was estimated using inputs characteristic of a Level 3 fair value measurement. Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:
 
Successor
 
 
Predecessor
 
June 30, 2017
 
 
December 31, 2016
(in thousands)
 
 
 
 
Proved properties
$
1,443,916

 
 
$
11,350,257

Unproved properties
194

 
 
998,860

 
1,444,110

 
 
12,349,117

Less accumulated depletion and amortization
(37,572
)
 
 
(9,843,908
)
 
$
1,406,538

 
 
$
2,505,209