Energy Prospectus

I now believe there is a very high probability that the LINE merger with BRY will be approved by year-end. When that happens in December, the unit price for LINE should move to the mid-$30s.

My Fair Value Estimate for LINE is now $40/unit. When the merger closes and the properties from BRY are dropped down into LINE, my guess is that Fair Value will be near $50/unit. If all goes as planned this will happen in Q2 2014.

BRY assets bring a lot more oil and a lot more running room to LINE.

Dan,
How is the income from LINE taxed? Thanks.

Linn Energy LLC (LINE) is a partnership for Federal Income tax purposes. Partnerships are "pass-through" entities, so they don't pay any income tax (as a general rule). LINE does have some minor subsidiaries subject to income taxes and they pay some state income taxes (less than 2% of net income).

If you buy LINE, you are buying shares in an LLC that has elected to be treated as a partnership for tax purposes. This is no different that buying units in a limited partnership. Current cash distributions are $0.2416/unit/month. Yes, it pays distributions monthly.

As a partner, you will receive a Form K-1 during the first quarter of each year that shows your allocation of partnership income and other items. You just put it on your personal tax return. There is some extra record keeping with an MLP, but it is not a big deal.

The good news is that a very low percentage of the cash distributions end up as taxable income. Most of your distributions are a reduction in your tax basis.

You can own LINE or any MLP in an IRA. Just be aware that if you have over $100,000 invested in MLPs within an IRA, you may have an issue with Unrelated Business Taxable Income (UBTI). UBTI is a very low percentage of your cash distributions.

Dan
It's not a question of how much you have invested in an mlp in an IRA----rather, if you receive more that $1,000 in UBTI, then it becomes a problem

For those EP members who have to declare tax in Germany, owning MLPs is a hassle, as it involves several tax declarations in the US in addition to the German one. The alternative is a certificate (Nordbank Energieinvestment 3), but the minimum investment is 20,000 + 3% handling fee.

Hence, Linn (LINE is not a MLP, is it?) and Lightstream (and Twin Butte and Mart) appear to be good alternatives for those seeking the combination of high dividend yield and a fair chance for share price appreciation.

LINE is an MLP. LNCO is a C-Corp. LNCO has a lower dividend yield, but you avoid the MLP hassle.

Great news! I think LINE should move to the mid-$30s but the ride may be rough until the smoke settles.