FUNDAMENTAL ANALYSIS

Business ProfileBusiness ProfileLinn Energy is an independent oil and gas company that engages in the acquisition

and development of oil and gas properties primarily in the mid-continent (Texas,

Kansas and Oklahoma), the Permian Basin, the Williston Basin and properties in

Michigan and California. Its assets are heavily weighted toward natural gas, though

Linn is seeking oil properties to provide balance to its energy portfolio of 7,700 wells

and 4.2 trillion cubic feet of natural gas and oil reserves. Linn’s assets have long

reserve lives that almost ensure stable quarterly distributions and reduce

management’s need to frequently replace properties due to natural decline in

inventory.

Areas of OperationsAreas of Operations

Wall Street’s ViewWall Street’s ViewLinn Energy , with a $2.90 dividend yielding 7.7 %, is getting a lot of attention, and 14 of

Wall Street’s sages have it on their “buy” scopes. Linn is also getting press from quite a few

investment services that have boarded the bandwagon. Most are trumpeting a potential 12-

month price target of $45, predicting 20 % higher revenues to $2.5 billion, a 30 % growth in

profits to $2.36 a share and a possible $3.30 dividend in 2013. Considering that natural gas is

trading at its lowest level in years, these numbers could be conservative. And if the price of

natural gas rises, as many believe it soon will, Linn’s dividend is likely to move much higher.

SWOT AnalysisSWOT Analysis1. Strengths

• Diversified, long-life and high-quality oil and natural gas reserve base that almost ensure stable quarterly distributions.

• Large inventory of lower-risk oil and natural gas development opportunities.

• Industry-leading hedge position which almost guarantees cash flow.

Current expected natural gas production hedged approximately 100% through 2017.

Current expected oil production hedged approximately 100% through 2016

• If the price of either commodity spikes dramatically, Linn's strategy forgoes some upside, but limits its downside risk

considerably and thus gives investors a secure outlook on return.

2. Weakness

•The company has taken on some large amount of debt, about $6 billion is long term debt. Its debt to

equity ratio is highest among its peers.

•It has the least current ratio among it peers, which signifies that the ability of the company to pay its short

term liabilities.

•Its three year stock return are also lowest among its peers. Though the return has been pretty high, it is

low as compared to the sector.

• Low oil and gas prices has been putting pressure on its cash flows

3. Opportunities

•The weaknesses in the global economy and commodity prices are forcing a

record number of assets onto the market, and Linn is perfectly positioned to

buy with a hedge book and access to capital that others don't have.

•A large number of acquisitions and partnerships with other companies like

BP and Anadarko Petroleum to acquire mature oil and gas assets have been

concluded recently.

•Upcoming Shale gas assets have a lot of potential for future growth.

4. Threats

•The company has lowest Cash and short term investments amongst its peers which could mean low liquidity

to pay back its creditors.

•High debt levels especially long term debt can hurt companies future profitability.

•Due to its large hedging positions, the company can loose significant investor as compared to its peers if oil

and gas prices move upwards sharply.

The CompetitionThe CompetitionTicker Name Market Capitalisation ($)

APC Anadarko Petroleum 37.77B

PXD Pioneer Natural Resources 13.92B

EVEP EV Energy Partners 2.68B

HK Halcon Resources 1.62B

SWN Southwestern Energy 12.44B

BBEP BreitBurn Energy Partners 1.347B

VNR Vanguard Natural Resources 1.463B

QRE QR Energy 862.31M

LINN Vs. CompetitionLINN Vs. CompetitionValuations LINE QRE BBEP VNR

Market Cap 8.080B 862.31M 1.347B 1.463B

Enterprise Value 14.05B 1.439B 2.116B

PE Ratio 7.978 11.86 6.345 7.364

Earnings Yield 12.53% 8.43% 15.76% 13.58%

Price / Sales Ratio 3.376 3.353 2.197 3.516

Price / Book Value 1.956 1.365 0.9065 1.508

Dividend Yield 7.07% 9.93% 9.40% 8.42%

Profitability & Management LINE QRE BBEP VNR

Gross Profit Margin 58.61% 75.94%

Profit Margin 29.33% 45.53% 68.10%

Asset Utilization 0.2585 0.2672 0.2741 0.2132

Return on Assets 10.27% 10.02% 8.70% 9.19%

Return on Equity 24.02% 25.19% 13.88% 18.26%

Current Ratio 1.131 1.782 1.905 2.403

Debt to Equity Ratio 1.454 0.9441 0.5208 1.115

Free Cash Flow -963.32M -227.34M -86.91M 36.17M

Income Statement and Stock Price LINE QRE BBEP

VNR

Revenue TTM 2.393B 257.15M 613.03M 415.94M

Revenue Growth 56.80% -8.35% 42.71% 35.02%

Earnings Per Share TTM 5.08 1.63 3.07 3.85

Earnings Per Share Growth -10.53% 218.2% 40.22% 88.57%

Net Income TTM 878.98M 91.10M 190.32M 162.10M

3 Year Stock Returns 73.80% 77.90% 83.61%

Balance Sheet LINE QRE BBEP VNR

Cash and ST Investments 1.883M 22.53M 83.68M

Long Term Debt 6.006B 596.50M 773.84M 1.082B

Total Assets 11.18B 1.396B 2.431B 2.158B

Liabilities 7.048B 764.03M 945.72M 1.188B

Shareholders Equity 4.132B 631.84M 1.486B 969.67M

Book Value 4.132B 631.84M 1.486B 969.67M

Book Value per Share 20.72 14.16 21.49 18.80

LINN Total Returns ComparisonHere are Linn Energy's total returns compared to the market and some of its peers. High historical total returns are excellent - especially if you held the stock at the time - but returns can change direction quickly. To predict future performance, looking at the business is more important than looking at historic returns.