UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


Form 10-Q








x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the Quarterly Period Ended March 31, 2009




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












LINN
ENERGY, LLC


(Exact
name of registrant as specified in its charter)








Delaware
            65-1177591(State
      or other jurisdiction of incorporation or organization)
            (IRS
      Employer
              Identification
      No.)600
      Travis, Suite 5100
              Houston,
      Texas
            77002(Address
      of principal executive offices)
            (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 (1) has submitted electronically and
posted on its corporate Web site, 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   ̈    No   ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one).





Large
accelerated filer  x      Accelerated
filer    ̈     Non-accelerated
filer   ̈    Smaller
reporting company   ̈


(Do not check if a smaller reporting
company)





Indicate
by check mark whether registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).    Yes   ̈    No  x





As of
April 30, 2009, there were 114,974,267 units outstanding.








TABLE OF CONTENTS





PageGlossary of Terms
            iiPart I - Financial InformationItem 1.
            Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2009
      and December 31, 2008
            1Condensed Consolidated Statements of Operations for the three
      months ended March 31, 2009 and 2008
            2Condensed Consolidated Statement of Unitholders’ Capital for
      the three months ended March 31, 2009
            3Condensed Consolidated Statements of Cash Flows for the three
      months ended March 31, 2009 and 2008
            4Notes to Condensed Consolidated Financial
      Statements
            5Item 2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            21Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            33Item 4.
            Controls and Procedures
            34Part II - Other InformationItem 1.
            Legal Proceedings
            35Item 1A.
            Risk Factors
            35Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            35Item 3.
            Defaults Upon Senior Securities
            35Item 4.
            Submission of Matters to a Vote of Security
      Holders
            35Item 5.
            Other Information
            35Item 6.
            Exhibits
            36Signature
            37




i
 Table of Contents
 GLOSSARY OF TERMS


As
commonly used in the oil and 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 a ratio of six Mcf of 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 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 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 a ratio of six Mcf of gas to one Bbl of
oil, condensate or natural gas liquids.




MMcfe/d.MMcfe per
day.




MMMBtu.  One
billion British thermal units.




Tcfe.  One trillion
cubic feet equivalent, determined using the ratio of six Mcf of gas to one Bbl
of oil, condensate or natural gas liquids.


ii
 Table of Contents
 PART I – FINANCIAL INFORMATION
  Item 1.        Financial
Statements
 LINN ENERGY, LLC
 CONDENSED
CONSOLIDATED BALANCE SHEETS


March
      31,
            
            December 31,2009
            
            2008(Unaudited)(in
      thousands,
              except
      unit amounts)AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            22,893
            
            
            $
            28,668Accounts
      receivable – trade, net
            
            
            110,561
            
            
            
            138,983Derivative
      instruments
            
            
            428,638
            
            
            
            368,951Other
      current assets
            
            
            47,142
            
            
            
            27,329Total
      current assets
            
            
            609,234
            
            
            
            563,931Noncurrent
      assets:Oil
      and gas properties (successful efforts method)
            
            
            3,901,557
            
            
            
            3,831,183Less
      accumulated depletion and amortization
            
            
            (329,248
            )
            
            
            (278,805
            )3,572,309
            
            
            
            3,552,378Other
      property and equipment
            
            
            114,131
            
            
            
            111,459Less
      accumulated depreciation
            
            
            (15,773
            )
            
            
            (13,171
            )98,358
            
            
            
            98,288Derivative
      instruments
            
            
            480,067
            
            
            
            493,705Other
      noncurrent assets
            
            
            12,950
            
            
            
            13,718493,017
            
            
            
            507,423Total
      noncurrent assets
            
            
            4,163,684
            
            
            
            4,158,089Total
      assets
            
            $
            4,772,918
            
            
            $
            4,722,020Liabilities
      and Unitholders’ CapitalCurrent
      liabilities:Accounts
      payable and accrued expenses
            
            $
            144,208
            
            
            $
            163,662Derivative
      instruments
            
            
            35,724
            
            
            
            47,005Other
      accrued liabilities
            
            
            15,965
            
            
            
            27,163Total
      current liabilities
            
            
            195,897
            
            
            
            237,830Noncurrent
      liabilities:Credit
      facility
            
            
            1,428,393
            
            
            
            1,403,393Senior
      notes, net
            
            
            250,265
            
            
            
            250,175Derivative
      instruments
            
            
            55,624
            
            
            
            39,350Other
      noncurrent liabilities
            
            
            33,352
            
            
            
            30,586Total
      noncurrent liabilities
            
            
            1,767,634
            
            
            
            1,723,504Unitholders’
      capital:114,975,396
      and 114,079,533 units issued and outstanding at March 31, 2009 and
      December 31, 2008, respectively
            
            
            2,038,389
            
            
            
            2,109,089Accumulated
      income
            
            
            770,998
            
            
            
            651,5972,809,387
            
            
            
            2,760,686Total
      liabilities and unitholders’ capital
            
            $
            4,772,918
            
            
            $
            4,722,020




The accompanying notes are an integral
part of these condensed consolidated financial statements.  1
 Table of Contents
 LINN ENERGY, LLC
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)


Three
      Months Ended
                March 31,2009
            
            2008(in
      thousands, except per unit amounts)Revenues
      and other:Oil,
      gas and natural gas liquid sales
            
            $
            79,864
            
            
            $
            175,872Gain
      (loss) on oil and gas derivatives
            
            
            161,315
            
            
            
            (268,794
            )Gas
      marketing revenues
            
            
            516
            
            
            
            2,816Other
      revenues
            
            
            966
            
            
            
            479242,661
            
            
            
            (89,627
            )Expenses:Lease
      operating expenses
            
            
            33,732
            
            
            
            19,490Transportation
      expenses
            
            
            2,967
            
            
            
            3,328Gas
      marketing expenses
            
            
            340
            
            
            
            2,417General
      and administrative expenses
            
            
            23,301
            
            
            
            19,076Exploration
      costs
            
            
            1,565
            
            
            
            2,620Depreciation,
      depletion and amortization
            
            
            52,104
            
            
            
            44,370Taxes,
      other than income taxes
            
            
            7,567
            
            
            
            12,973(Gain)
      loss on sale of assets and other, net
            
            
            (26,711
            )
            
            
            ―94,865
            
            
            
            104,274Other
      income and (expenses):Interest
      expense, net of amounts capitalized
            
            
            (14,409
            )
            
            
            (25,293
            )Loss
      on interest rate swaps
            
            
            (11,571
            )
            
            
            (39,393
            )Other,
      net
            
            
            (393
            )
            
            
            (163
            )(26,373
            )
            
            
            (64,849
            )Income
      (loss) from continuing operations before income taxes
            
            
            121,423
            
            
            
            (258,750
            )Income
      tax expense
            
            
            (136
            )
            
            
            (209
            )Income
      (loss) from continuing operations
            
            
            121,287
            
            
            
            (258,959
            )Discontinued
      operations:Loss
      on sale of assets, net of taxes
            
            
            (1,048
            )
            
            
            (294
            )Loss
      from discontinued operations, net of taxes
            
            
            (838
            )
            
            
            (106
            )(1,886
            )
            
            
            (400
            )Net
      income (loss)
            
            $
            119,401
            
            
            $
            (259,359
            )Income
      (loss) per unit – continuing operations:Units
      – basic
            
            $
            1.06
            
            
            $
            (2.28
            )Units
      – diluted
            
            $
            1.06
            
            
            $
            (2.28
            )Loss
      per unit – discontinued operations:Units
      – basic
            
            $
            (0.02
            )
            
            $
            ―Units
      – diluted
            
            $
            (0.02
            )
            
            $
            ―Net
      income (loss) per unit:Units
      – basic
            
            $
            1.04
            
            
            $
            (2.28
            )Units
      – diluted
            
            $
            1.04
            
            
            $
            (2.28
            )Weighted
      average units outstanding:Units
      – basic
            
            
            113,473
            
            
            
            113,757Units
      – diluted
            
            
            113,502
            
            
            
            113,757Distributions
      declared per unit
            
            $
            0.63
            
            
            $
            0.63




The
accompanying notes are an integral part of these condensed consolidated
financial statements.  2
 Table of Contents
 LINN ENERGY, LLC
 CONDENSED
CONSOLIDATED STATEMENT OF UNITHOLDERS’ CAPITAL
 (Unaudited)


Units
            
            Unitholders’
                Capital
            
            Accumulated
                Income
            
            Treasury
                Units
                (at
      Cost)
            
            Total
      Unitholders’
                Capital(in
      thousands)December 31,
      2008
            
            
            114,080
            
            
            $
            2,109,089
            
            
            $
            651,597
            
            
            $
            ―
            
            
            $
            2,760,686Issuance
      of units
            
            
            1,072
            
            
            
            ―
            
            
            
            ―
            
            
            
            ―
            
            
            
            ―Cancellation
      of units
            
            
            (177
            )
            
            
            (2,465
            )
            
            
            ―
            
            
            
            2,465
            
            
            
            ―Purchase
      of units
            
            
            
            
            
            
            ―
            
            
            
            ―
            
            
            
            (2,465
            )
            
            
            (2,465
            )Distributions
      to unitholders
            
            
            
            
            
            
            (72,538
            )
            
            
            ―
            
            
            
            ―
            
            
            
            (72,538
            )Unit-based
      compensation expenses
            
            
            
            
            
            
            4,303
            
            
            
            ―
            
            
            
            ―
            
            
            
            4,303Net
      income
            
            
            
            
            
            
            ―
            
            
            
            119,401
            
            
            
            ―
            
            
            
            119,401March 31,
      2009
            
            
            114,975
            
            
            $
            2,038,389
            
            
            $
            770,998
            
            
            $
            ―
            
            
            $
            2,809,387




The
accompanying notes are an integral part of these condensed consolidated
financial statements.  3
 Table of Contents
 LINN ENERGY, LLC
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)


Three
      Months Ended
                March 31,2009
            
            2008(in
      thousands)Cash
      flow from operating activities:Net
      income (loss)
            
            $
            119,401
            
            
            $
            (259,359
            )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation,
      depletion and amortization
            
            
            52,104
            
            
            
            50,587Unit-based
      compensation expenses
            
            
            4,303
            
            
            
            3,888Amortization
      and write-off of deferred financing fees and other
            
            
            2,487
            
            
            
            1,876(Gain)
      loss on sale of assets, net
            
            
            (24,663
            )
            
            
            294Mark-to-market
      on derivatives:Total
      (gains) losses
            
            
            (149,744
            )
            
            
            308,187Cash
      settlements
            
            
            104,430
            
            
            
            (1,958
            )Cash
      settlements on canceled derivatives
            
            
            4,257
            
            
            
            ―Premiums
      paid for derivatives
            
            
            ―
            
            
            
            (1,278
            )Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable – trade, net
            
            
            42,371
            
            
            
            (45,878
            )(Increase)
      decrease in other assets
            
            
            (20,150
            )
            
            
            1,245Increase
      (decrease) in accounts payable and accrued expenses
            
            
            (30,020
            )
            
            
            1,554Increase
      (decrease) in other liabilities
            
            
            (9,806
            )
            
            
            2,042Net
      cash provided by operating activities
            
            
            94,970
            
            
            
            61,200Cash
      flow from investing activities:Acquisition
      of oil and gas properties
            
            
            ―
            
            
            
            (515,894
            )Development
      of oil and gas properties
            
            
            (67,984
            )
            
            
            (92,739
            )Purchases
      of other property and equipment
            
            
            (2,767
            )
            
            
            (4,661
            )Proceeds
      from sales of oil and gas properties and other property and
      equipment
            
            
            11,934
            
            
            
            ―Net
      cash used in investing activities
            
            
            (58,817
            )
            
            
            (613,294
            )Cash
      flow from financing activities:Purchase
      of units
            
            
            (2,465
            )
            
            
            (1,451
            )Proceeds
      from issuance of debt
            
            
            75,000
            
            
            
            667,000Principal
      payments on debt
            
            
            (50,000
            )
            
            
            (44,927
            )Distributions
      to unitholders
            
            
            (72,538
            )
            
            
            (72,189
            )Financing
      fees and other, net
            
            
            8,075
            
            
            
            3,296Net
      cash provided by (used in) financing activities
            
            
            (41,928
            )
            
            
            551,729Net
      decrease in cash and cash equivalents
            
            
            (5,775
            )
            
            
            (365
            )Cash
      and cash equivalents:Beginning
            
            
            28,668
            
            
            
            1,441Ending
            
            $
            22,893
            
            
            $
            1,076




The
accompanying notes are an integral part of these condensed consolidated
financial statements.  4
 Table of Contents
 LINN ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


(1)
            Basis
      of Presentation




Nature
of Business




Linn
Energy, LLC (“LINN Energy” or the “Company”) is an independent oil and gas
company focused on the development and acquisition of long life properties which
complement its asset profile in producing basins within the United
States.




Principles
of Consolidation and Reporting




The
condensed consolidated financial statements at March 31, 2009, and for the
three months ended March 31, 2009 and 2008, are unaudited, but in the
opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results for the
interim periods.  Certain information and note disclosures normally
included in annual financial statements prepared in accordance with United
States generally accepted accounting principles (“GAAP”) have been condensed or
omitted under Securities and Exchange Commission (“SEC”) rules and regulations,
and 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, 2008.  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.




Presentation
Change




Certain
amounts in the condensed consolidated financial statements and notes thereto
have been reclassified to conform to the 2009 financial statement
presentation.  In particular, the condensed consolidated statements of
operations include categories of expense titled “lease operating expenses,”
“transportation expenses,” “exploration costs,” “taxes, other than income taxes”
and “(gain) loss on sale of assets and other, net” which were not reported in
prior period presentations.  The new categories present expenses in
greater detail than was previously reported and all comparative periods
presented have been reclassified to conform to the 2009 financial statement
presentation.  There was no impact to net income (loss) for prior
periods.




Discontinued
Operations




The
Company’s Appalachian Basin and Mid Atlantic Well Service, Inc. (“Mid Atlantic”)
operations have been classified as discontinued operations on the condensed
consolidated statements of operations for all periods
presented.  Unless otherwise indicated, information about the
statements of operations that is presented in the notes to condensed
consolidated financial statements relates only to LINN Energy’s continuing
operations.  See Note 2 for additional details.




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


5
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


reserves
of oil, gas and natural gas liquids (“NGL”), future cash flows from oil and gas
properties, depreciation, depletion and amortization, asset retirement
obligations, the fair value of derivatives and unit-based compensation
expenses.  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.  Illiquid credit
markets and volatile equity and energy markets have combined to increase the
uncertainty inherent in such estimates and assumptions.  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.




(2)
            Acquisitions,
      Divestitures and Discontinued
Operations




Acquisitions




On
January 31, 2008, the Company completed the acquisition of certain oil and
gas properties located primarily in the Mid-Continent Shallow region from
Lamamco Drilling Company for a purchase price of $542.2 million.




Divestitures




On
December 4, 2008, the Company completed the sale of its deep rights in
certain central Oklahoma acreage, which includes the Woodford Shale interval, to
Devon Energy Production Company, LP (“Devon”).  During 2008, the
Company received net proceeds of $153.2 million and the carrying value of net
assets sold was $54.2 million.  In the first quarter of 2009, certain
post closing matters were resolved and the Company recorded a gain of $25.4
million, which is recorded in “(gain) loss on sale of assets and other, net” on
the condensed consolidated statements of operations.  Of this amount,
approximately $13.9 million was received in April 2009 and is included in “other
current assets” on the condensed consolidated balance sheets at March 31,
2009.




On
August 15, 2008, the Company completed the sale of certain properties in
the Verden area in Oklahoma to Laredo Petroleum, Inc.  During 2008,
the Company received net proceeds equal to the carrying value of net assets sold
of $169.4 million.




On
July 1, 2008, the Company completed the sale of its interests in oil and
gas properties located in the Appalachian Basin to XTO Energy,
Inc.  During 2008, the Company received net proceeds of $566.5 million
and the carrying value of net assets sold was $405.8 million.  In
addition, in March 2008, the Company exited the drilling and service business in
the Appalachian Basin provided by its wholly owned subsidiary Mid
Atlantic.  The Company used the net proceeds from all divestitures to
reduce indebtedness (see Note 6).


6
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)




Discontinued
Operations




The
Company’s Appalachian Basin and Mid Atlantic operations have been classified as
discontinued operations on the condensed consolidated statements of operations
for all periods presented.  The following summarizes the Appalachian
Basin and Mid Atlantic amounts included in “loss from discontinued operations,
net of taxes” on the condensed consolidated statements of
operations:




Three
      Months Ended March 31,2009
            
            2008(in
      thousands)Total
      revenues and other
            
            $
            (1,211
            )
            
            $
            21,161Total
      operating expenses
            
            
            373
            
            
            
            (14,176
            )Interest
      expense
            
            
            ―
            
            
            
            (7,091
            )Loss
      from discontinued operations, net of taxes
            
            $
            (838
            )
            
            $
            (106
            )




Discontinued
operations activity in the three months ended March 31, 2009 primarily
represents activity related to post-closing adjustments.  The Company
computed interest expense related to discontinued operations in accordance with
Emerging Issues Task Force Issue No. 87-24, “Allocation of Interest to
Discontinued Operations” based on debt required to be repaid as a result
of the disposal transaction.




(3)
            Unitholders’
      Capital




Unit
Repurchase Plan




In
October 2008, the Board of Directors of the Company authorized the repurchase of
up to $100.0 million of the Company’s outstanding units.  During the
three months ended March 31, 2009, 123,800 units were purchased at an
average unit price of $12.99, for a total cost of approximately $1.6
million.  All units were subsequently canceled.  At
March 31, 2009, approximately $85.4 million remains available for unit
repurchase under the program.  The Company may purchase units from
time to time on the open market or in negotiated purchases.  The
timing and amounts of any such repurchases will be at the discretion of
management, subject to market conditions and other factors, and will be in
accordance with applicable securities laws and other legal
requirements.  The repurchase plan does not obligate the Company to
acquire any specific number of units and may be discontinued at any
time.  Units are purchased at fair market value on the date of
purchase.




Issuance
and Cancellation of Units




During
the three months ended March 31, 2009, the Company purchased 53,667 units
for approximately $0.9 million in conjunction with units received by the Company
for the payment of minimum withholding taxes due on units issued under its
equity compensation plan (see Note 12).  All units were
subsequently canceled.




Distributions




Under the
limited liability company agreement, Company unitholders are entitled to receive
a quarterly distribution of available cash to the extent there is sufficient
cash from operations after establishment of cash reserves and payment of fees
and expenses.  Distributions paid by the Company during the three
months ended March 31, 2009 are presented on the condensed consolidated
statement of unitholders’ capital.  On


7
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


April 23, 2009, the
Company’s Board of Directors declared a cash distribution of $0.63 per unit with
respect to the first quarter of 2009.  The distribution totaling
approximately $72.5 million will be paid on May 14, 2009, to
unitholders of record as of the close of business on May 6,
2009.




(4)
            Oil
      and GasCapitalized
Costs




Aggregate
capitalized costs related to oil and gas production activities with applicable
accumulated depletion and amortization are presented below:




March
      31,
                2009
            
            December 31,
                2008(in
      thousands)Proved
      properties:Leasehold
      acquisition
            
            $
            3,278,033
            
            
            $
            3,278,155Development
            
            
            531,173
            
            
            
            460,730Unproved
      properties
            
            
            92,351
            
            
            
            92,2983,901,557
            
            
            
            3,831,183Less
      accumulated depletion and amortization
            
            
            (329,248
            )
            
            
            (278,805
            )$
            3,572,309
            
            
            $
            3,552,378




(5)
            Business
      and Credit Concentrations




For the
three months ended March 31, 2009, the Company’s three largest customers
represented 19%, 17% and 16% of the Company’s sales.  For the three
months ended March 31, 2008, the Company’s two largest customers
represented 24% and 14% of the Company’s sales.




At
March 31, 2009, trade accounts receivable from three customers were greater
than 10% of the Company’s total trade accounts receivable.  At
March 31, 2009, trade accounts receivable from the Company’s three largest
customers represented approximately 19%, 15% and 15% of the Company’s
receivables.  At December 31, 2008, trade accounts receivable
from two customers were greater than 10% of the Company’s total trade accounts
receivable.  At December 31, 2008, trade accounts receivable from
the Company’s two largest customers represented approximately 20% and 16% of the
Company’s receivables.




(6)
            Debt




At
March 31, 2009, and December 31, 2008, the Company had the following
debt outstanding:




March 31,
                2009
            
            December 31,
                2008(in
      thousands)Credit
      facility (1)
            
            $
            1,428,393
            
            
            $
            1,403,393Senior
      notes, net (2)
            
            
            250,265
            
            
            
            250,175Less
      current maturities
            
            
            ―
            
            
            
            ―$
            1,678,658
            
            
            $
            1,653,568




(1)
            Variable
      interest rate of 2.03% at March 31, 2009, and 2.47% at
      December 31, 2008.




(2)
            Fixed
      interest rate of 9.875% and effective interest rate of
      10.25%.  Amount is net of unamortized discount of approximately
      $5.7 million and $5.8 million at March 31, 2009, and
      December 31, 2008,
respectively.


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 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)






Credit
Facility




At
March 31, 2009, the Company had a $1.85 billion borrowing base under its
Third Amended and Restated Credit Agreement with a maturity of August
2010.  On April 28, 2009, the Company entered into a Fourth
Amended and Restated Credit Agreement (“Credit Facility”), which amended and
restated the Company’s prior credit facility.  The Credit Facility has
a borrowing base of $1.75 billion and a maturity of August 2012.  In
connection with its new Credit Facility, during the second quarter of 2009, the
Company paid approximately $52.6 million in financing fees, which were deferred
and will be amortized over the life of the Credit Facility.  In
addition, during the second quarter of 2009, the Company wrote off deferred
financing fees related to its prior credit facility of approximately $3.6
million.




The
borrowing base under the Credit Facility will be redetermined semi-annually by
the lenders in their sole discretion, based on, among other things, reserve
reports as prepared by reserve engineers taking into account the oil and gas
prices at such time.  Significant declines in oil, gas or NGL prices
may result in a decrease in the borrowing base.  The Company’s
obligations under the Credit Facility are secured by mortgages on its oil and
gas properties as well as a pledge of all ownership interests in its operating
subsidiaries.  The Company is required to maintain the mortgages on
properties representing at least 80% of its oil and gas
properties.  Additionally, the obligations under the Credit Facility
are guaranteed by all of the Company’s material operating subsidiaries and may
be guaranteed by any future subsidiaries.




At the
Company’s election, interest on borrowings under the Credit Facility is
determined by reference to either the London Interbank Offered Rate (“LIBOR”)
plus an applicable margin between 2.50% and 3.25% per annum or the alternate
base rate (“ABR”) plus an applicable margin between 1.00% and 1.75% per
annum.  Interest is generally payable quarterly for ABR loans and at
the applicable maturity date for LIBOR loans.  The Company is required
to pay a fee of 0.5% per year on the unused portion of the borrowing base under
the Credit Facility.




The
Credit Facility contains various covenants, substantially similar to the prior
credit facility, that limit the Company’s ability to incur indebtedness, enter
into commodity and interest rate swaps, grant certain liens, make certain loans,
acquisitions, capital expenditures and investments, make distributions other
than from available cash, merge or consolidate, or engage in certain asset
dispositions, including a sale of all or substantially all of its
assets.  The Credit Facility also contains covenants, substantially
similar to the prior credit facility, that require the Company to maintain
adjusted earnings to interest expense and current liquidity financial
ratios.  The Company is in compliance with all financial and other
covenants of its Credit Facility.




At
March 31, 2009, available borrowing under the prior credit facility was
$415.4 million, which includes a $6.2 million reduction in availability for
outstanding letters of credit.  At April 30, 2009, available
borrowing under the new Credit Facility was $296.0 million, which includes a
$5.6 million reduction in availability for outstanding letters of
credit.




Senior
Notes




On
June 24, 2008, the Company entered into a purchase agreement with a group
of initial purchasers (“Initial Purchasers”) pursuant to which the Company
agreed to issue $255.9 million in aggregate principal amount of the Company’s
senior notes due 2018 (“Senior Notes”).  The Senior Notes were offered
and sold to the Initial Purchasers and then resold to qualified institutional
buyers each in transactions exempt from the registration requirements under the
Securities Act of 1933, as amended (“Securities Act”).  The Company
used the net proceeds (after deducting the Initial Purchasers’ discounts and
offering expense) of approximately $243.6 million to repay an outstanding term
loan.  In connection with the Senior Notes, the Company incurred
financing fees of approximately $7.8 million, which will be amortized over the
life of


9
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ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


the
Senior Notes; the expense is recorded in “interest expense, net of amounts
capitalized” on the condensed consolidated statements of
operations.  The $5.9 million discount on the Senior Notes will be
amortized over the life of the Senior Notes; the expense is recorded in
“interest expense, net of amounts capitalized” on the
condensed consolidated statements of operations.  See Note 8
for fair value disclosures related to the Senior Notes.




The
Senior Notes were issued under an Indenture dated June 27, 2008
(“Indenture”), mature on July 1, 2018, and bear interest at
9.875%.  Interest is payable semi-annually beginning January 1,
2009.  The Senior Notes are general unsecured senior obligations of
the Company and are effectively junior in right of payment to any secured
indebtedness of the Company to the extent of the collateral securing such
indebtedness.  Each of the Company’s material subsidiaries guaranteed
the Senior Notes on a senior unsecured basis.  The Indenture provides
that the Company may redeem: (i) on or prior to July 1, 2011, up to
35% of the aggregate principal amount of the Senior Notes at a redemption price
of 109.875% of the principal amount, plus accrued and unpaid interest;
(ii) prior to July 1, 2013, all or part of the Senior Notes at a
redemption price equal to the principal amount, plus a make whole premium (as
defined in the Indenture) and accrued and unpaid interest; and (iii) on or
after July 1, 2013, all or part of the Senior Notes at redemption prices
equal to 104.938% in 2013, 103.292% in 2014, 101.646% in 2015 and 100% in 2016
and thereafter.  The Indenture also provides that, if a change of
control (as defined in the Indenture) occurs, the holders have a right to
require the Company to repurchase all or part of the Senior Notes at a
redemption price equal to 101%, plus accrued and unpaid interest.




The
Senior Notes’ Indenture contains covenants that, among other things, limit the
Company’s ability to: (i) pay distributions on, purchase or redeem the
Company’s units or redeem its subordinated debt; (ii) make investments;
(iii) incur or guarantee additional indebtedness or issue certain types of
equity securities; (iv) create certain liens; (v) sell assets;
(vi) consolidate, merge or transfer all or substantially all of the
Company’s assets; (vii) enter into agreements that restrict distributions
or other payments from the Company’s restricted subsidiaries to the Company;
(viii) engage in transactions with affiliates; and (ix) create
unrestricted subsidiaries.




(7)
            Derivatives




Commodity
Derivatives




The
Company sells oil, gas and NGL in the normal course of its business and utilizes
derivative instruments to minimize the variability in cash flows due to price
movements in oil, gas and NGL.  The Company enters into derivative
instruments such as swap contracts, collars and put options to economically
hedge a portion of its forecasted oil, gas and NGL sales.  Oil puts
are also used to economically hedge NGL sales.  The Company did not
designate these contracts as cash flow hedges under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended, (“SFAS 133”);
therefore, the changes in fair value of these instruments are recorded in
current earnings.  See Note 8 for additional disclosures about
oil and gas commodity derivatives required by SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”).


10
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 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


The
following table summarizes open positions as of March 31, 2009, and
represents, as of such date, derivatives in place through December 31,
2014, on annual production volumes:




Year
                2009
            
            Year
                2010
            
            Year
                2011
            
            Year
                2012
            
            Year
                2013
            
            Year
                2014Gas
      Positions:Fixed
      Price Swaps:Hedged
      Volume (MMMBtu)
            
            
            29,689
            
            
            
            39,566
            
            
            
            31,901
            
            
            
            14,676
            
            
            
            ―
            
            
            
            ―Average
      Price ($/MMBtu)
            
            $
            8.53
            
            
            $
            8.50
            
            
            $
            8.50
            
            
            $
            8.57
            
            
            $
            ―
            
            
            $
            ―Puts:Hedged
      Volume (MMMBtu)
            
            
            5,220
            
            
            
            6,960
            
            
            
            6,960
            
            
            
            ―
            
            
            
            ―
            
            
            
            ―Average
      Price ($/MMBtu)
            
            $
            7.50
            
            
            $
            7.50
            
            
            $
            7.50
            
            
            $
            ―
            
            
            $
            ―
            
            
            $
            ―PEPL
      Puts: (1)Hedged
      Volume (MMMBtu)
            
            
            4,001
            
            
            
            10,634
            
            
            
            13,259
            
            
            
            5,934
            
            
            
            ―
            
            
            
            ―Average
      Price ($/MMBtu)
            
            $
            7.85
            
            
            $
            7.85
            
            
            $
            7.85
            
            
            $
            7.85
            
            
            $
            ―
            
            
            $
            ―Total:Hedged
      Volume (MMMBtu)
            
            
            38,910
            
            
            
            57,160
            
            
            
            52,120
            
            
            
            20,610
            
            
            
            ―
            
            
            
            ―Average
      Price ($/MMBtu)
            
            $
            8.32
            
            
            $
            8.26
            
            
            $
            8.20
            
            
            $
            8.37
            
            
            $
            ―
            
            
            $
            ―Oil
      Positions:Fixed
      Price Swaps:Hedged
      Volume (MBbls)
            
            
            1,828
            
            
            
            2,150
            
            
            
            2,073
            
            
            
            2,025
            
            
            
            2,275
            
            
            
            2,200Average
      Price ($/Bbl)
            
            $
            90.00
            
            
            $
            90.00
            
            
            $
            84.22
            
            
            $
            84.22
            
            
            $
            84.22
            
            
            $
            84.22Puts:
      (2)Hedged
      Volume (MBbls)
            
            
            1,382
            
            
            
            2,250
            
            
            
            2,352
            
            
            
            500
            
            
            
            ―
            
            
            
            ―Average
      Price ($/Bbl)
            
            $
            120.00
            
            
            $
            110.00
            
            
            $
            69.11
            
            
            $
            77.73
            
            
            $
            ―
            
            
            $
            ―Collars:Hedged
      Volume (MBbls)
            
            
            187
            
            
            
            250
            
            
            
            276
            
            
            
            348
            
            
            
            ―
            
            
            
            ―Average
      Floor Price ($/Bbl)
            
            $
            90.00
            
            
            $
            90.00
            
            
            $
            90.00
            
            
            $
            90.00
            
            
            $
            ―
            
            
            $
            ―Average
      Ceiling Price ($/Bbl)
            
            $
            114.25
            
            
            $
            112.00
            
            
            $
            112.25
            
            
            $
            112.35
            
            
            $
            ―
            
            
            $
            ―Total:Hedged
      Volume (MBbls)
            
            
            3,397
            
            
            
            4,650
            
            
            
            4,701
            
            
            
            2,873
            
            
            
            2,275
            
            
            
            2,200Average
      Price ($/Bbl)
            
            $
            102.21
            
            
            $
            99.68
            
            
            $
            77.00
            
            
            $
            83.79
            
            
            $
            84.22
            
            
            $
            84.22Gas
      Basis Differential Positions:PEPL
      Basis Swaps:Hedged
      Volume (MMMBtu)
            
            
            35,187
            
            
            
            43,166
            
            
            
            35,541
            
            
            
            34,066
            
            
            
            31,700
            
            
            
            ―Hedged
      Differential ($/MMBtu)
            
            $
            (0.97
            )
            
            $
            (0.97
            )
            
            $
            (0.96
            )
            
            $
            (0.95
            )
            
            $
            (1.01
            )
            
            $
            ―




(1)
            Settle
      on the Panhandle Eastern Pipeline (“PEPL”) spot price of gas to hedge
      basis differential associated with gas production in the Mid-Continent
      Deep and Mid-Continent Shallow
regions.




(2)
            The
      Company utilizes oil puts to hedge revenues associated with its NGL
      production.




Settled
derivatives on gas production for the three months ended March 31, 2009
included a volume of 12,970 MMMBtu at an average contract price of
$8.32.  Settled derivatives on oil and NGL production for the three
months ended March 31, 2009 included a volume of 1,132 MBbls at an average
contract price of $102.21.  The gas derivatives are settled based on
the closing New York Mercantile Exchange (“NYMEX”) future price of gas or on the
published PEPL spot price of gas on the settlement date, which occurs on the
third day preceding the production month.  The oil derivatives are
settled based on the month’s average daily NYMEX price of light oil and
settlement occurs on the final day of the production month.


11
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 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


Interest
Rate Swaps




The
Company has entered into interest rate swap agreements based on LIBOR to
minimize the effect of fluctuations in interest rates.  If LIBOR is
lower than the fixed rate in the contract, the Company is required to pay the
counterparties the difference, and conversely, the counterparties are required
to pay the Company if LIBOR is higher than the fixed rate in the
contract.  The Company did not designate the interest rate swap
agreements as cash flow hedges under SFAS 133; therefore, the changes in
fair value of these instruments are recorded in current earnings.  See
Note 8 for additional disclosures about interest rate swaps required by
SFAS 157.




During
the three months ended March 31, 2009, the Company amended and extended its
interest rate swap portfolio.  The Company canceled, in a cashless
transaction, its interest rate swap agreements that settled at a fixed rate of
5.06% through 2011, and entered into new agreements that settle at a fixed rate
of 3.80% through 2014.  The following presents the settlement terms of
the interest rate swaps at March 31, 2009:




Year
                2009
            
            Year
                2010
            
            Year
                2011
            
            Year
                2012
            
            Year
                2013(1)(dollars
      in thousands)Notional
      Amount
            
            $
            1,250,000
            
            
            $
            1,250,000
            
            
            $
            1,250,000
            
            
            $
            1,250,000
            
            
            $
            1,250,000Fixed
      Rate
            
            
            3.80
            %
            
            
            3.80
            %
            
            
            3.80
            %
            
            
            3.80
            %
            
            
            3.80
            %




(1)
            Actual
      settlement term is through January 6,
2014.




In April
2009, the Company canceled one interest rate swap agreement.  At
April 30, 2009, the Company had swap agreements with an aggregate notional
amount of $1.21 billion that settle at a fixed rate of 3.85% through
2014.




Outstanding
Notional Amounts




The
following presents the outstanding notional amounts and maximum number of months
outstanding of derivative instruments:




March 31,
                2009
            
            December 31,
                2008Outstanding
      notional amounts of gas contracts (MMMBtu)
            
            
            168,800
            
            
            
            196,756Maximum
      number of months gas contracts outstanding
            
            
            45
            
            
            
            48Outstanding
      notional amounts of oil contracts (MBbls)
            
            
            20,096
            
            
            
            21,229Maximum
      number of months oil contracts outstanding
            
            
            69
            
            
            
            72Outstanding
      notional amount of interest rate swaps (in thousands)
            
            $
            1,250,000
            
            
            $
            1,212,000Maximum
      number of months interest rate swaps outstanding
            
            
            57
            
            
            
            24


12
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 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


Balance
Sheet Presentation




The
Company’s commodity derivatives and interest rate swap derivatives are presented
on a net basis in “derivative instruments” on the condensed consolidated balance
sheets.  The following summarizes the fair value of derivatives
outstanding on a gross basis:




March 31,
                2009
            
            December 31,
                2008(in
      thousands)Assets:Commodity
      derivatives
            
            $
            1,044,788
            
            
            $
            977,847Interest
      rate swaps
            
            
            553
            
            
            
            ―$
            1,045,341
            
            
            $
            977,847Liabilities:Commodity
      derivatives
            
            $
            142,444
            
            
            $
            119,124Interest
      rate swaps
            
            
            85,540
            
            
            
            82,422$
            227,984
            
            
            $
            201,546




By using
derivative instruments to economically hedge exposures to changes in commodity
prices and interest rates, the Company exposes itself to credit risk and market
risk.  Credit risk is the failure of the counterparty to perform under
the terms of the derivative contract.  When the fair value of a
derivative contract is positive, the counterparty owes the Company, which
creates credit risk.  The Company’s counterparties are participants in
its Credit Facility (see Note 6) which is secured by the Company’s oil and
gas reserves; therefore, the Company is not required to post any
collateral.  The Company does not require collateral from the
counterparties.  The maximum amount of loss due to credit risk that
the Company would incur if its counterparties failed completely to perform
according to the terms of the contracts, based on the gross fair value of
financial instruments, was approximately $1.05 billion at March 31,
2009. The Company minimizes the credit risk in derivative instruments by:
(i) limiting its exposure to any single counterparty; (ii) entering
into derivative instruments only with counterparties that are also lenders in
the Company’s Credit Facility, and meet the Company’s minimum credit quality
standard, or have a guarantee from an affiliate that meets the Company’s minimum
credit quality standard; and (iii) monitoring the creditworthiness of the
Company’s counterparties on an ongoing basis.  In accordance with the
Company’s standard practice, its commodity and interest rate swap derivatives
are subject to counterparty netting under agreements governing such derivatives
and therefore the risk of such loss is somewhat mitigated at March 31,
2009.




Gain
(Loss) on Derivatives




Gains and
losses on derivatives are reported on the condensed consolidated statements of
operations in “gain (loss) on oil and gas derivatives” and “loss on interest
rate swaps” and include realized and unrealized gains
(losses).  Realized gains (losses), excluding canceled commodity
derivatives, represent amounts related to the settlement of derivative
instruments, and for commodity derivatives, are aligned with the underlying
production.  Unrealized gains (losses) represent the change in fair
value of the derivative instruments and are non-cash items.


13
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 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


The
following presents the Company’s reported gains and losses on derivative
instruments:




Three
      Months Ended March 31,2009
            
            2008(in
      thousands)Realized
      gains (losses):Commodity
      derivatives
            
            $
            119,812
            
            
            $
            (4,809
            )Canceled
      commodity derivatives
            
            
            4,257
            
            
            
            ―Interest
      rate swaps
            
            
            (10,114
            )
            
            
            (1,441
            )$
            113,955
            
            
            $
            (6,250
            )Unrealized
      gains (losses):Commodity
      derivatives
            
            $
            37,246
            
            
            $
            (263,985
            )Interest
      rate swaps
            
            
            (1,457
            )
            
            
            (37,952
            )$
            35,789
            
            
            $
            (301,937
            )Total
      gains (losses):Commodity
      derivatives
            
            $
            161,315
            
            
            $
            (268,794
            )Interest
      rate swaps
            
            
            (11,571
            )
            
            
            (39,393
            )$
            149,744
            
            
            $
            (308,187
            )




During
the three months ended March 31, 2009, the Company canceled (before the
contract settlement date) derivative contracts on estimated future gas
production resulting in realized gains of $4.3 million.




(8)
            Fair
      Value Measurements




Fair
Value Measurements on a Recurring Basis




The
Company accounts for its oil and gas commodity derivatives and interest rate
swaps at fair value (see Note 7) on a recurring basis in accordance with
the provisions of SFAS 157.  As such, assumed credit risk
adjustments, based on published credit ratings, public bond yield spreads and
credit default swap spreads, are applied to the Company’s commodity derivatives
and interest rate swaps.




The
following presents the Company’s fair value hierarchy for assets and liabilities
measured at fair value on a recurring basis at March 31,
2009.  These items are included in “derivative instruments” on the
condensed consolidated balance sheets.




Fair
      Value Measurements on a Recurring Basis
                March 31,
      2009Level
      2
            
            Netting(1)
            
            Total(in
      thousands)Assets:Commodity
      derivatives
            
            $
            1,044,788
            
            
            $
            (136,367
            )
            
            $
            908,421Interest
      rate swaps
            
            $
            553
            
            
            $
            (269
            )
            
            $
            284Liabilities:Commodity
      derivatives
            
            $
            142,444
            
            
            $
            (136,367
            )
            
            $
            6,077Interest
      rate swaps
            
            $
            85,540
            
            
            $
            (269
            )
            
            $
            85,271




(1)
            Represents
      counterparty netting under derivative netting
  agreements.  14
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)




Fair
Value Measurements on a Nonrecurring Basis




Effective
January 1, 2009, the Company adopted SFAS 157 for nonfinancial assets
and liabilities that are measured at fair value on a nonrecurring
basis.  The Company accounts for additions to its asset retirement
obligation liability (see Note 9) and impairment of long-lived assets, if
any, at fair value on a nonrecurring basis in accordance with the provisions of
SFAS 157.




The
following presents the Company’s fair value hierarchy for assets and liabilities
measured at fair value on a nonrecurring basis at March 31,
2009.  These items are included in “other noncurrent liabilities” on
the condensed consolidated balance sheets.




Level
      3(in
      thousands)Liabilities:Asset
      retirement obligations – liabilities added related to
    drilling
            
            $
            32




The fair
value of additions to the asset retirement obligation liability is measured
using valuation techniques consistent with the income approach, converting
future cash flows to a single discounted amount.  Significant inputs
to the valuation include: (i) estimated plug and abandon cost per well based on
Company experience; (ii) estimated remaining life per well based on average
reserve life per field; and (iii) the Company’s average credit-adjusted
risk-free interest rate (10.1% for the three months ended March 31,
2009).  There was no impact to the Company’s results of operations for
the three months ended March 31, 2009 from the adoption of SFAS 157 for
nonfinancial assets and liabilities.




At
March 31, 2009, the Company also had Senior Notes with a net carrying value
of $250.3 million (see Note 6) and a fair value of $209.4
million.  The fair value of the Senior Notes was estimated based on
prices quoted from third-party financial institutions.




(9)
            Asset
      Retirement Obligations




Asset
retirement obligations associated with retiring tangible long-lived assets, are
recognized as a liability in the period in which a legal obligation is incurred
and becomes determinable.  See Note 8 for additional disclosures
about asset retirement obligations required by SFAS 157.




The
following presents a reconciliation of the asset retirement obligation liability
(in thousands):




Asset
      retirement obligations at December 31, 2008
            
            $
            28,922Liabilities
      added related to drilling
            
            
            32Current
      year accretion expense
            
            
            685Settlements
            
            
            (386
            )Revision
      of estimates
            
            
            1,043Asset
      retirement obligations at March 31, 2009
            
            $
            30,296


15
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)




(10)
            Commitments
      and Contingencies




On
September 15, 2008, Lehman Brothers Holdings Inc. (“Lehman Holdings”) filed
a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code (“Chapter 11”) with the United States Bankruptcy Court
for the Southern District of New York (the “Court”).  On October 3,
2008, Lehman Brothers Commodity Services Inc. (“Lehman Commodity Services”) also
filed a voluntary petition for reorganization under Chapter 11 with the
Court.  As of March 31, 2009, and December 31, 2008, the Company
had a receivable of approximately $67.6 million from Lehman Commodity Services
for canceled derivative contracts.  The Company is pursuing various
legal remedies to protect its interests.  At March 31, 2009, and
December 31, 2008, the Company estimated approximately $6.7 million of the
receivable balance to be collectible.  The net receivable of
approximately $6.7 million is included in “other current assets” on the
condensed consolidated balance sheets at March 31, 2009 and December 31,
2008.  The Company believes that the ultimate disposition of this
matter will not have a material adverse effect on its business, financial
position, results of operations or liquidity.




From time
to time the Company is a party to various legal proceedings or is subject to
industry rulings that could bring rise to claims in the ordinary course of
business.  The Company is not currently a party to any litigation or
pending claims that it believes would have a material adverse effect on its
business, financial position, results of operations or liquidity.




(11)
            Earnings
      Per Unit




Effective
January 1, 2009, the Company adopted Financial Accounting Standards Board
(“FASB”) Staff Position EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”
(“FSP EITF 03-6-1”), which requires that the Company’s unvested restricted units
be included in the computation of earnings per unit under the two-class
method.  FSP EITF 03-6-1 requires retrospective adjustment of all
prior period earnings per unit data.  The Company had no impact from
the adoption of FSP EITF 03-6-1 as it reported a loss from continuing operations
for the three months ended March 31, 2008.


16
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


The
following table provides a reconciliation of the numerators and denominators of
the basic and diluted per unit computations for income (loss) from continuing
operations:




Income
      (Loss) (Numerator)
            
            Units
      (Denominator)
            
            Per
      Unit Amount(in
      thousands)Three
      months ended March 31, 2009:Income
      from continuing operations:Allocated
      to units
            
            $
            121,287Allocated
      to unvested restricted units
            
            
            (1,485
            )$
            119,802Income
      per unit:Basic
      income per unit
            
            
            
            
            
            
            113,473
            
            
            $
            1.06Dilutive
      effect of unit equivalents
            
            
            
            
            
            
            29
            
            
            
            ―Diluted
      income per unit
            
            
            
            
            
            
            113,502
            
            
            $
            1.06Three
      months ended March 31, 2008:Loss
      from continuing operations:Allocated
      to units
            
            $
            (258,959
            )Allocated
      to unvested restricted units
            
            
            ―$
            (258,959
            )Loss
      per unit:Basic
      loss per unit
            
            
            
            
            
            
            113,757
            
            
            $
            (2.28
            )Dilutive
      effect of unit equivalents
            
            
            
            
            
            
            ―
            
            
            
            ―Diluted
      loss per unit
            
            
            
            
            
            
            113,757
            
            
            $
            (2.28
            )




Basic
units outstanding excludes the effect of weighted average anti-dilutive unit
equivalents related to 2.0 million and 1.6 million unit options and warrants for
the three months ended March 31, 2009 and March 31, 2008,
respectively.  All equivalent units were anti-dilutive for the three
months ended March 31, 2008, as the Company reported a loss from continuing
operations.




(12)
            Unit-Based
      Compensation




During
the three months ended March 31, 2009, the Company granted 1,076,255
restricted units and 382,405 unit options to employees, primarily as part of its
annual review of employee compensation, with an aggregate fair value of
approximately $17.4 million.  The unit options and restricted units
vest ratably over three years.  For the three months ended
March 31, 2009 and 2008, the Company recorded unit-based compensation
expenses in continuing operations of approximately $4.3 million and $3.6
million, respectively, and it is included in “lease operating expenses” or
“general and administrative expenses” on the condensed consolidated statements
of operations.




(13)
            Income
      Taxes




The
Company is a limited liability company treated as a partnership for federal and
state income tax purposes, with the exception of the state of Texas, with income
tax liabilities and/or benefits of the Company passed through to
unitholders.  As such, it is not a taxable entity, it does not
directly pay federal and state income tax and recognition has not been given to
federal and state income taxes for the operations of the
Company.  Limited liability companies are subject to state income
taxes in Texas.  In addition, certain of the Company’s subsidiaries
are Subchapter C-corporations subject to federal and state income
taxes.


17
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


(14)
            Related
      Party Transactions




At
March 31, 2008, and during the three months ended March 31, 2008, on
an aggregate basis, a group of certain direct or indirect wholly owned
subsidiaries of Lehman Holdings owned over 10% of the Company’s outstanding
units.  A reference to “Lehman” hereafter in this footnote refers to
Lehman Holdings or one or more of its subsidiaries, as applicable.  As
such, Lehman was considered a related party under the provisions of SFAS
No. 57, “Related Party
Disclosures” during that time frame.  Lehman’s subsidiaries
provided certain services to the Company, including participation in the
Company’s Credit Facility and offering of Senior Notes (see Note 6) and
sale of commodity derivative instruments (see Note 7), which were all
consummated on terms equivalent to those that prevail in arm’s-length
transactions.  During the three months ended March 31, 2008, the
Company paid distributions on units to Lehman of approximately $9.3 million,
interest on borrowings of approximately $1.1 million and financing fees of
approximately $0.4 million.  During the three months ended
March 31, 2008, the Company purchased approximately $1.3 million of deal
contingent oil swap contracts from Lehman and paid Lehman approximately $0.8
million on settled derivative contracts.




(15)
            Supplemental
      Disclosures to the Condensed Consolidated Balance Sheets and Statements of
      Cash Flows




“Other
accrued liabilities” reported on the condensed consolidated balance sheets
include the following:




March 31,
                2009
            
            December 31,
                2008(in
      thousands)Accrued
      compensation
            
            $
            6,629
            
            
            $
            11,366Accrued
      interest
            
            
            7,160
            
            
            
            14,232Other
            
            
            2,176
            
            
            
            1,565$
            15,965
            
            
            $
            27,163


18
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


Supplemental
disclosures to the condensed consolidated statements of cash flows are presented
below:




Three
      Months Ended March 31,2009
            
            2008(in
      thousands)Cash
      payments for interest
            
            $
            20,610
            
            
            $
            29,902Cash
      payments for income taxes
            
            $
            1
            
            
            $
            205Non-cash
      investing activities:In
      connection with the purchase of oil and gas properties, liabilities were
      assumed as follows:Fair
      value of assets acquired
            
            $
            ―
            
            
            $
            535,433Cash
      paid
            
            
            ―
            
            
            
            (515,894
            )Liabilities
      assumed, net
            
            $
            ―
            
            
            $
            19,539Non-cash
      financing activities:Units
      issued in connection with the purchase of oil and gas
      properties
            
            $
            ―
            
            
            $
            14,708




For
purposes of the statements of cash flows, the Company considers all highly
liquid short-term investments with original maturities of three months or less
to be cash equivalents.  Restricted cash of $1.5 million and $1.3
million is included in “other noncurrent assets” on the consolidated balance
sheets at March 31, 2009 and December 31, 2008, respectively, and
represents cash the Company has deposited into a separate account and designated
for asset retirement obligations in accordance with contractual
agreements.




The
Company manages its working capital and cash requirements to borrow only as
needed from its Credit Facility.  At March 31, 2009,
approximately $8.1 million was included in “accounts payable and accrued
expenses” on the condensed consolidated balance sheets which represents
reclassified net outstanding checks.  There was no such balance at
December 31, 2008.




(16)
            Recently
      Issued Accounting Standards




In April
2009, the FASB issued FASB Staff Position FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies”(“FSP FAS 141(R)-1”).  Under this standard, assets acquired and
liabilities assumed in a business combination that arise from contingencies will
be recognized at fair value if fair value can be reasonably
estimated.  If fair value of such an asset or liability cannot be
reasonably estimated, the asset or liability will generally be recognized in
accordance with SFAS No. 5, “Accounting for Contingencies”
and FASB Interpretation No. 14, “Reasonable Estimation of the Amount
of a Loss.”  FSP FAS 141(R)-1 applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period on or after December 15, 2008.  The
Company will implement FSP FAS 141(R)-1 for acquisitions that occur after
January 1, 2009.




In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “BusinessCombinations”(“SFAS 141(R)”).  Under SFAS 141(R), an acquiring
entity will be required to recognize all the assets acquired and liabilities
assumed at fair value with limited exceptions.  SFAS 141(R) will
change the


19
 Table of Contents
 LINN
ENERGY, LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
 (Unaudited)


accounting
treatment for certain specific items, including acquisition costs, which will be
expensed as incurred.  SFAS 141(R) also includes new disclosure
requirements.  SFAS 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period on or after December 15, 2008.  The
Company will implement SFAS 141(R) for acquisitions that occur after
January 1, 2009.




In
September 2006, the FASB issued SFAS 157, which provides guidance for using
fair value to measure assets and liabilities.  SFAS 157 applies
whenever other standards require (or permit) assets or liabilities to be
measured at fair value and clarifies that for items that are not actively
traded, such as certain kinds of derivatives, fair value should reflect the
price in a transaction with a market participant, including an adjustment for
risk, not just the mark-to-market value.  The Company adopted the
provisions of SFAS 157 related to financial assets and liabilities and
nonfinancial assets and liabilities measured on a recurring basis effective
January 1, 2008, and related to nonfinancial assets and liabilities measured on
a nonrecurring basis effective January 1, 2009 (see
Note 8).  There was no impact from the adoption related to items
measured on a nonrecurring basis.


20
 Table of Contents
 Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations


The
following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008.  The following discussion contains
forward-looking statements that reflect the Company’s future plans, estimates,
beliefs and expected performance.  The forward-looking statements are
dependent upon events, risks and uncertainties that may be outside the Company’s
control.  The Company’s actual results could differ materially from
those discussed in these forward-looking statements.  Factors that
could cause or contribute to such differences include, but are not limited to,
market prices for oil, gas and NGL, production volumes, estimates of proved
reserves, capital expenditures, economic and competitive conditions, regulatory
changes and other uncertainties, as well as those factors discussed in
“Cautionary Statement” below and in the Annual Report on Form 10-K,
particularly in Part I. Item 1A. “Risk Factors.”  In light
of these risks, uncertainties and assumptions, the forward-looking events
discussed may not occur.




A
reference to a “Note” herein refers to the accompanying Notes to Condensed
Consolidated Financial Statements contained in Item 1. “Financial
Statements.”




Executive
Overview




LINN
Energy is an independent oil and gas company focused on the development and
acquisition of long life properties which complement its asset profile in
producing basins within the United States.  The Company’s oil, gas and
NGL properties are located in three regions in the United States:




·
            Mid-Continent
      Deep, which includes the Texas Panhandle Deep Granite Wash formation and
      deep formations in Oklahoma;


·
            Mid-Continent
      Shallow, which includes the Texas Panhandle Brown Dolomite formation and
      shallow formations in Oklahoma; and


·
            Western,
      which includes the Brea Olinda Field of the Los Angeles Basin in
      California.




The
results of the Company’s Appalachian Basin and Mid Atlantic operations are
classified as discontinued operations for all periods presented (see
Note 2).  Unless otherwise indicated, results of operations
information presented herein relates only to LINN Energy’s continuing
operations.




Results
from continuing operations for the three months ended March 31, 2009,
included the following:




·
            oil,
      gas and NGL sales of approximately $79.9 million, compared to $175.9
      million in the first quarter of
2008;


·
            daily
      production of 217 MMcfe/d, compared to 196 MMcfe/d in the first quarter of
      2008;


·
            realized
      gains on commodity derivatives of approximately $124.1 million, compared
      to realized losses of $4.8 million in the first quarter of
      2008;


·
            capital
      expenditures of approximately $73.3
million;


·
            41
      wells drilled; and


·
            average
      of 3 operated drilling rigs.




Renegotiated
Credit Facility




In April
2009, the Company entered into a new $1.75 billion Credit Facility, extending
the maturity two years, from August 2010 to August 2012.  The new
Credit Facility will result in increased interest expense due to higher interest
rates and amortization of financing fees.  See “Credit Facility” in
“Liquidity and Capital Resources” below for additional details.




Unit
Repurchase Plan




During
the three months ended March 31, 2009, the Company repurchased, under its
previously approved unit repurchase plan, 123,800 units at an average unit price
of $12.99, for a total cost of approximately $1.6
million.  All  21
 Table of Contents
 Item 2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


units
were subsequently canceled.  At March 31, 2009, approximately
$85.4 million remains available for unit repurchase under the
program.  The Company may purchase units from time to time on the open
market or in negotiated purchases.  The timing and amounts of any such
repurchases will be at the discretion of management, subject to market
conditions and other factors, and will be in accordance with applicable
securities laws and other legal requirements.  The repurchase plan
does not obligate the Company to acquire any specific number of units and may be
discontinued at any time.  Units are purchased at fair market value on
the date of purchase.




Credit
and Capital Market Disruption




Multiple
events during 2008 and 2009 involving numerous financial institutions have
effectively restricted current liquidity within the capital markets throughout
the United States and around the world.  Despite efforts by treasury
and banking regulators in the United States, Europe and other nations to provide
liquidity to the financial sector, capital markets currently remain
constrained.  To the extent the Company accesses credit or capital
markets in the near term, its ability to obtain terms and pricing similar to its
existing terms and pricing may be limited.  In addition, the Company
cannot be assured that counterparties to the Company’s derivative contracts will
be able to perform under these contracts.  For additional information
about the Company’s credit risk related to derivative contracts see
“Counterparty Credit Risk” in “Liquidity and Capital Resources”
below.


22
 Table of Contents
 Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Results
of Operations – Continuing Operations




Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008




Three
      Months Ended March 31,2009
            
            2008
            
            Variance(in
      thousands)Revenues
      and other:Gas
      sales
            
            $
            42,228
            
            
            $
            85,428
            
            
            $
            (43,200
            )Oil
      sales
            
            
            26,770
            
            
            
            64,307
            
            
            
            (37,537
            )NGL
      sales
            
            
            10,866
            
            
            
            26,137
            
            
            
            (15,271
            )Total
      oil, gas and NGL sales
            
            
            79,864
            
            
            
            175,872
            
            
            
            (96,008
            )Gain
      (loss) on oil and gas derivatives
            
            
            161,315
            
            
            
            (268,794
            )
            
            
            430,109Gas
      marketing revenues
            
            
            516
            
            
            
            2,816
            
            
            
            (2,300
            )Other
      revenues
            
            
            966
            
            
            
            479
            
            
            
            487$
            242,661
            
            
            $
            (89,627
            )
            
            $
            332,288Expenses:Lease
      operating expenses
            
            $
            33,732
            
            
            $
            19,490
            
            
            $
            14,242Transportation
      expenses
            
            
            2,967
            
            
            
            3,328
            
            
            
            (361
            )Gas
      marketing expenses
            
            
            340
            
            
            
            2,417
            
            
            
            (2,077
            )General
      and administrative expenses (1)
            
            
            23,301
            
            
            
            19,076
            
            
            
            4,225Exploration
      costs
            
            
            1,565
            
            
            
            2,620
            
            
            
            (1,055
            )Depreciation,
      depletion and amortization
            
            
            52,104
            
            
            
            44,370
            
            
            
            7,734Taxes,
      other than income taxes
            
            
            7,567
            
            
            
            12,973
            
            
            
            (5,406
            )(Gain)
      loss on sale of assets and other, net
            
            
            (26,711
            )
            
            
            ―
            
            
            
            (26,711
            )$
            94,865
            
            
            $
            104,274
            
            
            $
            (9,409
            )Other
      income and (expenses)
            
            $
            (26,373
            )
            
            $
            (64,849
            )
            
            $
            38,476Income
      (loss) from continuing operations before income taxes
            
            $
            121,423
            
            
            $
            (258,750
            )
            
            $
            380,173




Notes
to table:




(1)
            General
      and administrative expenses for the three months ended March 31, 2009
      and 2008 includes approximately $4.2 million and $3.6 million,
      respectively, of non-cash unit-based compensation
  expenses.  23
 Table of Contents
 Item 2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Three
      Months Ended March 31,2009
            
            2008
            
            VarianceAverage
      daily production:Gas
      (MMcf/d)
            
            
            133
            
            
            
            123
            
            
            
            8
            %Oil
      (MBbls/d)
            
            
            8.8
            
            
            
            7.8
            
            
            
            13
            %NGL
      (MBbls/d)
            
            
            5.2
            
            
            
            4.4
            
            
            
            18
            %Total
      (MMcfe/d)
            
            
            217
            
            
            
            196
            
            
            
            11
            %Weighted average prices
      (hedged):(1)Gas
      (Mcf)
            
            $
            7.94
            
            
            $
            8.22
            
            
            
            (3
            )%Oil
      (Bbl)
            
            $
            118.19
            
            
            $
            74.98
            
            
            
            58
            %NGL
      (Bbl)
            
            $
            23.32
            
            
            $
            65.84
            
            
            
            (65
            )%Weighted average prices
      (unhedged):(2)Gas
      (Mcf)
            
            $
            3.53
            
            
            $
            7.66
            
            
            
            (54
            )%Oil
      (Bbl)
            
            $
            33.76
            
            
            $
            90.45
            
            
            
            (63
            )%NGL
      (Bbl)
            
            $
            23.32
            
            
            $
            65.84
            
            
            
            (65
            )%Representative
      NYMEX oil and gas prices:Gas
      (MMBtu)
            
            $
            4.91
            
            
            $
            8.03
            
            
            
            (39
            )%Oil
      (Bbl)
            
            $
            43.08
            
            
            $
            97.90
            
            
            
            (56
            )%Costs
      per Mcfe of production:Lease
      operating expenses
            
            $
            1.73
            
            
            $
            1.10
            
            
            
            57
            %Transportation
      expenses
            
            $
            0.15
            
            
            $
            0.19
            
            
            
            (21
            )%General
      and administrative expenses (3)
            
            $
            1.19
            
            
            $
            1.07
            
            
            
            11
            %Depreciation,
      depletion and amortization
            
            $
            2.67
            
            
            $
            2.49
            
            
            
            7
            %Taxes,
      other than income taxes
            
            $
            0.39
            
            
            $
            0.73
            
            
            
            (47
            )%




Notes
to table:




(1)
            Includes
      the effect of realized gains (losses) on derivatives of $119.8 million
      (excluding $4.3 million realized gains on canceled contracts) and $(4.8)
      million for the three months ended March 31, 2009 and 2008,
      respectively.  The Company utilizes oil puts to hedge revenues
      associated with its NGL production; therefore, all realized gains (losses)
      on oil derivative contracts are included in weighted average oil prices,
      rather than weighted average NGL
prices.




(2)
            Does
      not include the effect of realized gains (losses) on
      derivatives.




(3)
            General
      and administrative expenses for the three months ended March 31, 2009
      and 2008 includes approximately $4.2 million and $3.6 million,
      respectively, of non-cash unit-based compensation
      expenses.  Excluding these amounts, general and administrative
      expenses for the three months ended March 31, 2009 and 2008 were
      $0.98 per Mcfe and $0.87 per Mcfe, respectively.  This is a
      non-GAAP measure used by management to analyze the Company’s
      performance.


24
 Table of Contents
 Item 2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Revenues
and Other




Oil,
Gas and NGL Sales


Oil, gas
and NGL sales decreased by approximately $96.0 million, or 55%, to approximately
$79.9 million for the three months ended March 31, 2009, from $175.9
million for the three months ended March 31, 2008, due to lower commodity
prices.  Lower gas, oil and NGL prices decreased revenues by
approximately $49.5 million, $45.0 million and $19.8 million,
respectively.




Total
production increased to 217 MMcfe/d during the three months ended March 31,
2009, from 196 MMcfe/d during the three months ended March 31,
2008.  Volume increases during the three months ended March 31,
2009 increased total oil, gas and NGL revenues by $18.3 million compared to the
three months ended March 31, 2008.




The
following presents average daily production by region:




Three
      Months Ended March 31,2009
            
            2008
            
            IncreaseAverage
      daily production (MMcfe/d):Mid-Continent
      Deep
            
            
            142
            
            
            
            129
            
            
            
            13
            
            
            
            10
            %Mid-Continent
      Shallow
            
            
            61
            
            
            
            54
            
            
            
            7
            
            
            
            13
            %Western
            
            
            14
            
            
            
            13
            
            
            
            1
            
            
            
            8
            %217
            
            
            
            196
            
            
            
            21
            
            
            
            11
            %




The 10%
increase in average daily production in the Mid-Continent Deep region reflects
results of the Company’s capital drilling program in the Texas Panhandle Granite
Wash along with ongoing optimization and workover projects focused on the base
asset.  The 13% increase in average daily production in the
Mid-Continent Shallow region reflects results of the Company’s capital drilling
program in the Texas Panhandle, as well as production from acquired properties
beginning in February 2008 (see Note 2).  The Western region consists
of a very low decline asset base and continues to produce at levels consistent
with the comparable period of the prior year.  Production in this
region has now fully recovered from the effects of wildfires that occurred in
the fourth quarter of 2008.




Gain
(Loss) on Oil and Gas Derivatives


The
Company determines the fair value of its oil and gas derivatives using pricing
models that use a variety of techniques, including quotes and pricing
analysis.  See Note 7 and Note 8 for additional information
and details regarding derivatives in place through December 31,
2014.  During the three months ended March 31, 2009, the Company
had commodity derivative contracts in place for approximately 108% of its gas
production and 90% of its oil and NGL production, which resulted in realized
gains of $124.1 million, of which $4.3 million related to derivative contracts
on estimated future gas production canceled before the settlement
date.  During the three months ended March 31, 2008, the Company
recorded realized losses of approximately $4.8 million.  Unrealized
gains and losses result from changes in market valuations of derivatives as
future commodity price expectations change compared to the contract prices on
the derivatives.  During the first quarter of 2009, expected future
oil and gas prices decreased, which resulted in unrealized gains on derivatives
of approximately $37.2 million for the three months ended March 31,
2009.  During the first quarter of 2008, expected future oil and gas
prices increased, which resulted in unrealized losses on derivatives of
approximately $264.0 million for the three months ended March 31,
2008.  For information about the Company’s credit risk related to
derivative contracts see “Counterparty Credit Risk” in “Liquidity and Capital
Resources” below.




Expenses




Lease
Operating Expenses


Lease
operating expenses include expenses such as labor, field office, vehicle,
supervision, maintenance, tools and supplies and workover
expenses.  Lease operating expenses increased by approximately $14.2
million, or 73%, to


25
 Table of Contents
 Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


$33.7
million for the three months ended March 31, 2009, from $19.5 million for
the three months ended March 31, 2008.  Lease operating expenses
per Mcfe also increased, to $1.73 per Mcfe for the three months ended
March 31, 2009, from $1.10 per Mcfe for the three months ended
March 31, 2008.  Lease operating expenses increased primarily due
to costs associated with properties acquired in the first quarter of 2008 in the
Mid-Continent Shallow region (see Note 2), as well as commodity price-driven
service and materials cost increases across all operating
regions.




Transportation
Expenses


Transportation
expenses were comparable to 2008, and decreased by approximately $0.3 million,
or 9%, to $3.0 million for the three months ended March 31, 2009, from $3.3
million for the three months ended March 31, 2008.




General and Administrative
Expenses


General
and administrative expenses are costs not directly associated with field
operations and include costs of employees and executive officers, related
benefits, office leases and professional fees.  General and
administrative expenses increased by approximately $4.2 million, or 22%, to
$23.3 million for the three months ended March 31, 2009, from $19.1 million
for the three months ended March 31, 2008.  General and
administrative expenses per Mcfe also increased, to $1.19 per Mcfe for the three
months ended March 31, 2009, from $1.07 per Mcfe for the three months ended
March 31, 2008.  The increase in expense was primarily due to
increases in employee severance expenses, including accelerated unit-based
compensation expenses, of approximately $1.4 million, as well as increases in
charitable contributions of approximately $1.2 million and higher professional
service fees of approximately $1.2 million.




Exploration
Costs


Exploration
costs decreased by approximately $1.0 million, or 38%, to $1.6 million for the
three months ended March 31, 2009, from $2.6 million for the three months
ended March 31, 2008.  The decrease was primarily due to a
reduction in 3-D seismic and data library expenses of approximately $2.4
million, partially offset by an increase in unproved leasehold costs of
approximately $1.4 million during the three months ended March 31, 2009,
compared to the three months ended March 31, 2008.




Depreciation,
Depletion and Amortization


Depreciation,
depletion and amortization increased by approximately $7.7 million, or 17%, to
$52.1 million for the three months ended March 31, 2009, from $44.4 million
for the three months ended March 31, 2008.  Higher total
production levels and higher depletion rates associated with year end
price-related reserve revisions were the main reason for the
increase.  Depreciation, depletion and amortization per Mcfe increased
to $2.67 per Mcfe for the three months ended March 31, 2009, from $2.49 per
Mcfe for the three months ended March 31, 2008.




Taxes,
Other Than Income Taxes


Taxes,
other than income taxes, which consist primarily of production and ad valorem
taxes, decreased by approximately $5.4 million, or 42%, to $7.6 million for the
three months ended March 31, 2009, from $13.0 million for the three months
ended March 31, 2008.  Production taxes, which are a function of
revenues generated from production, decreased by approximately $6.0 million
compared to the three months ended March 31, 2008, primarily due to lower
commodity prices.  Ad valorem taxes, which are based on the value of
reserves and production equipment and vary by location, increased by
approximately $0.8 million compared to the three months ended March 31,
2008.




(Gain)
Loss on Sale of Assets and Other, Net


The
increase in (gain) loss on sale of assets and other, net for the three months
ended March 31, 2009 was primarily due to a gain of $25.4 million from the
sale of Woodford Shale assets (see Note 2).


26
 Table of Contents
 Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Other
Income and (Expenses)




Three
      Months Ended March 31,2009
            
            2008
            
            Variance(in
      thousands)Interest
      expense, net of amounts capitalized
            
            $
            (14,409
            )
            
            $
            (25,293
            )
            
            $
            10,884Loss
      on interest rate swaps
            
            
            (11,571
            )
            
            
            (39,393
            )
            
            
            27,822Other,
      net
            
            
            (393
            )
            
            
            (163
            )
            
            
            (230
            )$
            (26,373
            )
            
            $
            (64,849
            )
            
            $
            38,476




Other
income and (expenses) decreased by approximately $38.5 million due to lower
interest expense and a reduced loss on interest rate swaps.  Interest
expense was driven by lower interest rates on the Credit Facility, which were
driven by lower LIBOR rates.  The unrealized mark-to-market loss on
interest rate swaps decreased as the forward curve decreased less during the
three months ended March 31, 2009, than it did during the three months
ended March 31, 2008.




In April
2009, the Company entered into a new Credit Facility, which will result in
increased interest expense due to higher interest rates and amortization of
financing fees.  See “Credit Facility” in “Liquidity and Capital
Resources” below for additional details.




Income
Tax Benefit (Expense)




Income
tax expense was approximately $0.1 million and $0.2 million for the three months
ended March 31, 2009 and 2008, respectively.  Tax expense for
both periods primarily represents Texas margin tax expense.  Limited
liability companies are subject to state income tax in Texas.  The
Company is treated as a partnership for federal and state income tax purposes;
however, certain of the Company’s subsidiaries are
Subchapter C-corporations subject to federal and state income
taxes.




Liquidity
and Capital Resources




Overview




The
Company has utilized public and private equity, proceeds from bank borrowings
and issuance of Senior Notes, and cash flow from operations for capital
resources and liquidity.  To date, the primary use of capital has been
for the acquisition and development of oil and gas properties.  The
Company manages its working capital and cash requirements to borrow only as
needed.  In April 2009, the Company entered into a new $1.75 billion
Credit Facility, extending the maturity two years, from August 2010 to August
2012.  See “Credit Facility” below for additional
details.  The Company had $296.0 million in available borrowing
capacity at April 30, 2009.




As the
Company pursues growth, it continually monitors the capital resources available
to meet future financial obligations and planned capital
expenditures.  The Company’s future success in growing reserves and
production will be highly dependent on the capital resources available and its
success in drilling for or acquiring additional reserves.  The Company
actively reviews acquisition opportunities on an ongoing basis.  If
the Company were to make significant additional acquisitions for cash, it would
need to borrow additional amounts, if available, or obtain additional debt or
equity financing.  The Company’s Credit Facility and Senior Notes
impose certain restrictions on the Company’s ability to obtain additional debt
financing.  Based upon current expectations, the Company believes
liquidity and capital resources will be sufficient for the conduct of its
business and operations.


27
 Table of Contents
 Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Cash
Flows




The
following presents a comparative cash flow summary:




Three
      Months Ended
                March 31,2009
            
            2008
            
            Variance(in
      thousands)Net
      cash:Provided
      by operating activities
            
            $
            94,970
            
            
            $
            61,200
            
            
            $
            33,770Used
      in investing activities
            
            
            (58,817
            )
            
            
            (613,294
            )
            
            
            554,477Provided
      by (used in) financing activities
            
            
            (41,928
            )
            
            
            551,729
            
            
            
            (593,657
            )Net
      decrease in cash and cash equivalents
            
            $
            (5,775
            )
            
            $
            (365
            )
            
            $
            (5,410
            )




Operating
Activities


At
March 31, 2009, the Company had $22.9 million of cash and cash equivalents
compared to $28.7 million at December 31, 2008.  Cash provided by
operating activities for the three months ended March 31, 2009 was
approximately $95.0 million, compared to $61.2 million for the three months
ended March 31, 2008.  The increase in operating cash flows was
primarily driven by higher realized gains from oil and gas derivatives,
partially offset by reduced oil and gas revenues associated with lower commodity
prices.




Investing
Activities


Cash used
in investing activities was approximately $58.8 million for the three months
ended March 31, 2009, compared to $613.3 million for the three months ended
March 31, 2008.  The decrease in cash used in investing
activities was primarily due to a lack of acquisition activity during the three
months ended March 31, 2009, compared to the three months ended
March 31, 2008.




The total
cash used in investing activities for the three months ended March 31, 2009
includes approximately $68.0 million for the drilling and development of oil and
gas properties.  For 2009, the Company estimates its total drilling
and development capital expenditures will be approximately $150.0
million.  This estimate is under continuous review and is subject to
on-going adjustment.  The Company expects to fund these capital
expenditures with cash flow from operations.  During the three months
ended March 31, 2009, the Company also received proceeds from sales of oil
and gas properties totaling approximately $11.9 million, primarily due to the
sale to Devon (see Note 2).




Financing
Activities


Cash used
by financing activities was approximately $41.9 million for the three months
ended March 31, 2009, compared to cash provided by financing activities of
$551.7 million for the three months ended March 31, 2008.  The
change in financing cash flows was primarily due to operating cash flows that
were lower than the total of capital expenditures and distributions paid during
the three months ended March 31, 2009.


28
 Table of Contents
 Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Distributions




Under the
limited liability company agreement, Company unitholders are entitled to receive
a quarterly distribution of available cash to the extent there is sufficient
cash from operations after establishment of cash reserves and payment of fees
and expenses.  The following provides a summary of distributions paid
by the Company during the three months ended March 31, 2009:




Date
      Paid
            
            Period
      Covered by Distribution
            
            Distribution
                Per
      Unit
            
            Total
              Distribution(in
      millions)February
      2009
            
            October
      1 – December 31, 2008
            
            $
            0.63
            
            
            $
            72.5




On April
23, 2009, the Company’s Board of Directors declared a cash distribution of $0.63
per unit with respect to the first quarter of 2009.  The distribution
totaling approximately $72.5 million will be paid on May 14, 2009, to
unitholders of record as of the close of business on May 6,
2009.




Credit
Facility




On
April 28, 2009, the Company entered into a new Credit Facility with a
borrowing base of $1.75 billion and a maturity of August 2012.  In
connection with its new Credit Facility, during the second quarter of 2009, the
Company paid approximately $52.6 million in financing fees, which were deferred
and will be amortized over the life of the Credit Facility.  In
addition, during the second quarter of 2009, the Company wrote off deferred
financing fees related to its prior credit facility of approximately $3.6
million.  At April 30, 2009, available borrowing under the Credit
Facility was $296.0 million, which includes a $5.6 million reduction in
availability for outstanding letters of credit.




The
borrowing base under the Credit Facility will be redetermined semi-annually by
the lenders in their sole discretion, based on, among other things, reserve
reports as prepared by reserve engineers taking into account the oil and gas
prices at such time.  Significant declines in oil, gas or NGL prices
may result in a decrease in the borrowing base.  The Company’s
obligations under the Credit Facility are secured by mortgages on its oil and
gas properties as well as a pledge of all ownership interests in its operating
subsidiaries.  The Company is required to maintain the mortgages on
properties representing at least 80% of its oil and gas
properties.  Additionally, the obligations under the Credit Facility
are guaranteed by all of the Company’s material operating subsidiaries and may
be guaranteed by any future subsidiaries.




At the
Company’s election, interest on borrowings under the Credit Facility is
determined by reference to either LIBOR plus an applicable margin between 2.50%
and 3.25% per annum or the ABR plus an applicable margin between 1.00% and 1.75%
per annum.  Interest is generally payable quarterly for ABR loans and
at the applicable maturity date for LIBOR loans.  The Company is
required to pay a fee of 0.5% per year on the unused portion of the borrowing
base under the Credit Facility.




The
Credit Facility contains various covenants, substantially similar to the prior
credit facility, that limit the Company’s ability to incur indebtedness, enter
into commodity and interest rate swaps, grant certain liens, make certain loans,
acquisitions, capital expenditures and investments, make distributions other
than from available cash, merge or consolidate, or engage in certain asset
dispositions, including a sale of all or substantially all of its
assets.  The Credit Facility also contains covenants, substantially
similar to the prior credit facility, that require the Company to maintain
adjusted earnings to interest expense and current liquidity financial
ratios.  The Company is in compliance with all financial and other
covenants of its Credit Facility.


29
 Table of Contents
 Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Senior
Notes




On
June 24, 2008, the Company entered into a purchase agreement with a group
of Initial Purchasers pursuant to which the Company agreed to issue $255.9
million in aggregate principal amount of the Company’s Senior Notes due
2018.  The Senior Notes were offered and sold to the Initial
Purchasers and then resold to qualified institutional buyers each in
transactions exempt from the registration requirements under the Securities
Act.  The Company used the net proceeds (after deducting the Initial
Purchasers’ discounts and offering expense) of approximately $243.6 million to
repay an outstanding term loan.  In connection with the Senior Notes,
the Company incurred financing fees of approximately $7.8 million, which will be
amortized over the life of the Senior Notes; the expense is recorded in
“interest expense, net of amounts capitalized” on the
condensed consolidated statements of operations.  The $5.9
million discount on the Senior Notes will be amortized over the life of the
Senior Notes; the expense is recorded in “interest expense, net of amounts
capitalized” on the condensed consolidated statements of
operations.  As of April 30, 2009, the net carrying value of the
Senior Notes was approximately $250.3 million and the fair value was
approximately $228.1 million.  The fair value of the Senior Notes was
estimated based on prices quoted from third-party financial
institutions.




The
Senior Notes were issued under an Indenture dated June 27, 2008, mature on
July 1, 2018, and bear interest at 9.875%.  Interest is payable
semi-annually beginning January 1, 2009.  The Senior Notes are
general unsecured senior obligations of the Company and are effectively junior
in right of payment to any secured indebtedness of the Company to the extent of
the collateral securing such indebtedness.  Each of the Company’s
material subsidiaries guaranteed the Senior Notes on a senior unsecured
basis.  The Indenture provides that the Company may redeem:
(i) on or prior to July 1, 2011, up to 35% of the aggregate principal
amount of the Senior Notes at a redemption price of 109.875% of the principal
amount, plus accrued and unpaid interest; (ii) prior to July 1, 2013,
all or part of the Senior Notes at a redemption price equal to the principal
amount, plus a make whole premium (as defined in the Indenture) and accrued and
unpaid interest; and (iii) on or after July 1, 2013, all or part of
the Senior Notes at redemption prices equal to 104.938% in 2013, 103.292% in
2014, 101.646% in 2015 and 100% in 2016 and thereafter.  The Indenture
also provides that, if a change of control (as defined in the Indenture) occurs,
the holders have a right to require the Company to repurchase all or part of the
Senior Notes at a redemption price equal to 101%, plus accrued and unpaid
interest.




The
Senior Notes’ Indenture contains covenants that, among other things, limit the
Company’s ability to: (i) pay distributions on, purchase or redeem the
Company’s units or redeem its subordinated debt; (ii) make investments;
(iii) incur or guarantee additional indebtedness or issue certain types of
equity securities; (iv) create certain liens; (v) sell assets;
(vi) consolidate, merge or transfer all or substantially all of the
Company’s assets; (vii) enter into agreements that restrict distributions
or other payments from the Company’s restricted subsidiaries to the Company;
(viii) engage in transactions with affiliates; and (ix) create
unrestricted subsidiaries.




Counterparty
Credit Risk




The
Company accounts for its oil and gas commodity derivatives and interest rate
swaps at fair value (see Note 7).  The Company’s counterparties
are participants in its Credit Facility (see Note 6) which is secured by
the Company’s oil and gas reserves; therefore, the Company is not required to
post any collateral.  The Company does not require collateral from the
counterparties.  The Company minimizes the credit risk in derivative
instruments by: (i) limiting its exposure to any single counterparty;
(ii) entering into derivative instruments only with counterparties that are
also lenders in the Company’s Credit Facility, and meet the Company’s minimum
credit quality standard, or have a guarantee from an affiliate that meets the
Company’s minimum credit quality standard; and (iii) monitoring the
creditworthiness of the Company’s counterparties on an ongoing
basis.  In accordance with the Company’s standard practice, its
commodity and interest rate swap derivatives are subject to counterparty netting
under agreements governing such derivatives and therefore the risk of loss due
to counterparty nonperformance is somewhat mitigated.




Off-Balance
Sheet Arrangements




The
Company does not currently have any off-balance sheet arrangements.


30
 Table of Contents
 Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Contingencies




In
September and October 2008, Lehman Holdings and Lehman Commodity Services,
respectively, filed voluntary petitions for reorganization under Chapter 11
(see Note 10).  As of March 31, 2009, and December 31, 2008,
the Company had a receivable of approximately $67.6 million from Lehman
Commodity Services for canceled derivative contracts.  The Company is
pursuing various legal remedies to protect its interests.  Based on
market expectations, the Company estimated approximately $6.7 million of the
receivable balance to be collectible.  The net receivable of
approximately $6.7 million is included in “other current assets” on the
condensed consolidated balance sheets at March 31, 2009 and December 31,
2008.  The Company believes that the ultimate disposition of this
matter will not have a material adverse effect on its business, financial
position, results of operations or liquidity.




During
the three months ended March 31, 2009 and 2008, the Company made no
significant payments to settle any legal, environmental or tax
proceedings.  The Company regularly analyzes current information and
accrues for probable liabilities on the disposition of certain matters, as
necessary.  Liabilities for loss contingencies arising from claims,
assessments, litigation or other sources are recorded when it is probable that a
liability has been incurred and the amount can be reasonably
estimated.




Critical
Accounting Policies and Estimates




The
discussion and analysis of the Company’s financial condition and results of
operations is based upon the consolidated financial statements, which have been
prepared in accordance with GAAP.  The preparation of these financial
statements requires the Company to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities.  Certain accounting
policies involve judgments and uncertainties to such an extent that there is
reasonable likelihood that materially different amounts could have been reported
under different conditions, or if different assumptions had been
used.  The Company evaluates its estimates and assumptions on a
regular basis.  The Company bases estimates on historical experience
and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates and
assumptions used in the preparation of financial statements.




With the
exception of accounting policies related to purchase accounting required under
the provisions of SFAS 141(R) and FSP FAS 141(R)-1, there have been no
significant changes with regard to the critical accounting policies disclosed in
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008.  The policies disclosed include the accounting
for oil and gas properties, revenue recognition, purchase accounting and
derivative instruments.




New
Accounting Pronouncements




See
Note 16 for details regarding SFAS 157, SFAS 141(R) and FSP
FAS 141(R)-1 implementation effective January 1, 2009.  See
Note 11 for details regarding FSP EITF 03-6-1 implementation effective
January 1, 2009.


31
 Table of Contents
 Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Continued


Cautionary
Statement




This
Quarterly Report on Form 10-Q contains forward-looking statements that are
subject to a number of risks and uncertainties, many of which are beyond the
Company’s control.  These statements may include statements about the
Company’s:




·
            business
      strategy;


·
            acquisition
      strategy;


·
            financial
      strategy;


·
            drilling
      locations;


·
            oil,
      gas and NGL reserves;


·
            realized
      oil, gas and NGL prices;


·
            production
      volumes;


·
            lease
      operating expenses, general and administrative expenses and development
      costs;


·
            future
      operating results; and


·
            plans,
      objectives, expectations and
intentions.




All of
these types of statements, other than statements of historical fact included in
this Quarterly Report on Form 10-Q, are forward looking
statements.  These forward-looking statements may be found in
Item 2.  In some cases, forward-looking statements can be
identified by terminology such as “may,” “will,” “could,” “should,” “expect,”
“plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “pursue,” “target,” “continue,” the negative of such terms or other
comparable terminology.




The
forward-looking statements contained in this Quarterly Report on Form 10-Q
are largely based on Company expectations, which reflect estimates and
assumptions made by Company management.  These estimates and
assumptions reflect management’s best judgment based on currently known market
conditions and other factors.  Although the Company believes such
estimates and assumptions to be reasonable, they are inherently uncertain and
involve a number of risks and uncertainties beyond its control.  In
addition, management’s assumptions may prove to be inaccurate.  The
Company cautions that the forward-looking statements contained in this Quarterly
Report on Form 10-Q are not guarantees of future performance, and it cannot
assure any reader that such statements will be realized or the forward-looking
statements or events will occur.  Actual results may differ materially
from those anticipated or implied in forward-looking statements due to factors
listed in “Item 1A. Risk Factors” in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008, and elsewhere in the
Annual Report.  The forward-looking statements speak only as of the
date made, and other than as required by law, the Company undertakes no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.


32
 Table of Contents
 Item 3.       Quantitative and Qualitative
Disclosures About Market Risk


The
primary objective of the following information is to provide forward-looking
quantitative and qualitative information about potential exposure to market
risks.  The term “market risk” refers to the risk of loss arising from
adverse changes in oil, gas and NGL prices and interest rates.  The
disclosures are not meant to be precise indicators of expected future losses,
but rather indicators of reasonably possible losses.  This
forward-looking information provides indicators of how the Company views and
manages its ongoing market risk exposures.  All of the Company’s
market risk sensitive instruments were entered into for purposes other than
trading.




The
following should be read in conjunction with the financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q and
in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008.  A reference to a “Note” herein refers to the
accompanying Notes to Condensed Consolidated Financial Statements contained in
Item 1. “Financial Statements.”




Commodity
Price Risk




The
Company enters into derivative contracts with respect to a portion of its
projected production through various transactions that provide an economic hedge
of the risk related to the future prices received.  The Company does
not enter into derivative contracts for trading purposes (see
Note 7).  At March 31, 2009, the fair value of contracts
that settle during the next twelve months was an asset of approximately $390.0
million and a liability of $0.9 million for a net asset of approximately $389.1
million.  A 10% increase in the index oil and gas prices above the
March 31, 2009 prices for the next twelve months would result in a net
asset of approximately $324.3 million which represents a decrease in the fair
value of approximately $64.8 million; conversely, a 10% decrease in the index
oil and gas prices would result in a net asset of approximately $454.4 million
which represents an increase in the fair value of approximately $65.3
million.




Interest
Rate Risk




On
April 28, 2009, the Company entered into a new Credit Facility with a
borrowing base of $1.75 billion and a maturity of August 2012 (see
Note 6).  At April 30, 2009, the Company had long-term debt
outstanding under its Credit Facility of approximately $1.45 billion, which
incurred interest at floating rates.  A 1% increase in LIBOR would
result in an estimated $14.5 million increase in annual interest
expense.  The Company has entered into interest rate swap agreements
based on LIBOR to minimize the effect of fluctuations in interest rates (see
Note 7).




Counterparty
Credit Risk




The
Company accounts for its oil and gas commodity derivatives and interest rate
swaps at fair value on a recurring basis in accordance with the provisions of
SFAS 157 (see Note 8).  The fair value of these derivative
financial instruments includes the impact of assumed credit risk adjustments,
which are based on the Company’s and counterparties’ published credit ratings,
public bond yield spreads and credit default swap spreads, as
applicable.




At
March 31, 2009, the average public bond yield spread utilized to estimate
the impact of the Company’s credit risk on derivative liabilities was
approximately 8.83%.  A 1% increase in the average public bond yield
spread would result in an estimated $1.4 million increase in net income for the
three months ended March 31, 2009.  At March 31, 2009, the
credit default swap spreads utilized to estimate the impact of counterparties’
credit risk on derivative assets ranged between 0% and 9.23%.  A 1%
increase in each of the counterparties’ credit default swap spreads would result
in an estimated $12.3 million decrease in net income for the three months ended
March 31, 2009.


33
 Table of Contents
 Item 4.       Controls and Procedures


Evaluation
of Disclosure Controls and Procedures




The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s reports under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to management, including the Company’s Chief Executive Officer and Chief
Financial Officer, and the Company’s Audit Committee of the Board of Directors,
as appropriate, to allow timely decisions regarding required
disclosure.  In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.




The
Company carried out an evaluation under the supervision and with the
participation of its management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of its disclosure controls and
procedures as of the end of the period covered by this report.  Based
on this evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were effective
as of March 31, 2009.




Changes
in the Company’s Internal Control Over Financial Reporting




The
Company’s management is also responsible for establishing and maintaining
adequate internal controls over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act.  The
Company’s internal controls were designed to provide reasonable assurance as to
the reliability of its financial reporting and the preparation and presentation
of the condensed consolidated financial statements for external purposes in
accordance with accounting principles generally accepted in the United
States.




Because
of its inherent limitations, internal control over financial reporting may not
detect or prevent misstatements.  Projections of any evaluation of the
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




There
were no changes in the Company’s internal controls over financial reporting
during the first quarter of 2009 that materially affected, or were reasonably
likely to materially affect, the Company’s internal control over financial
reporting.


34
 Table of Contents
 PART II – OTHER INFORMATION


Item
1.             Legal
Proceedings




Not
applicable.




Item 1A.          Risk
Factors




Our
business has many risks.  Factors that could materially adversely
affect our business, financial position, results of operations, liquidity or the
trading price of our units are described in “Item 1A. Risk Factors” in our
Annual Report on Form 10-K for the year ended December 31,
2008.  As of the date of this report, these risk factors have not
changed materially.  This information should be considered carefully,
together with other information in this report and other reports and materials
we file with the SEC.




Item
2.             Unregistered
Sales of Equity Securities and Use of Proceeds




Issuer
Purchases of Equity Securities




The
following sets forth information with respect to the Company with respect to
repurchases of its units during the first quarter of 2009:




Period
            
            Total
      Number of Units Purchased
            
            Average
      Price Paid Per Unit
            
            Total
      Number of Units Purchased as Part of Publicly Announced Plans or
      Programs
            
            Approximate Dollar Value of
      Units that May Yet be Purchased Under the Plans or Programs(2)(in
      millions)January
      1 – 31 (1)
            
            
            53,667
            
            
            $
            15.98
            
            
            
            ―
            
            
            $
            87.0March
      1 – 31
            
            
            123,800
            
            
            $
            12.99
            
            
            
            123,800
            
            
            $
            85.4




(1)
            During
      the first quarter of 2009, 53,667 units purchased were related to units
      received by the Company for the payment of withholding taxes due on units
      issued under its equity compensation
plan.




(2)
            In
      October 2008, the Board of Directors of the Company authorized the
      repurchase of up to $100.0 million of the Company’s outstanding
      units.  The Company may purchase units from time to time on the
      open market or in negotiated purchases.  The repurchase plan
      does not obligate the Company to acquire any specific number of units and
      may be discontinued at any time.




Item
3.             Defaults
Upon Senior Securities




None.




Item
4.             Submission
of Matters to a Vote of Security Holders




None.




Item
5.             Other
Information




On
May 5, 2009, the Board of Directors of the Company approved a Change of
Control Protection Plan (“COC Plan”), to be effective April 25, 2009,
applicable to all full-time employees of the Company (other than those
with separate employment agreements) that provides for certain benefits
payable upon a separation of service for specified reasons that occurs within
two years following a change of control (as defined in the COC
Plan).
  The
foregoing description does not purport to be complete and is qualified in its
entirety by reference to the COC Plan, a copy of which is attached as
Exhibit 10.3 to this Quarterly Report on Form 10-Q.   35
 Table of Contents
 Item 6.        Exhibits


Exhibit Number
            
            
            
            Description10
            .1*†
            
            —
            
            Fourth
      Amended and Restated Credit Agreement dated as of April 28, 2009
      among Linn Energy, LLC as Borrower, BNP Paribas, as Administrative Agent,
      and the Lenders and agents Party thereto10
            .2*†
            
            —
            
            Fourth
      Amended and Restated Guaranty and Pledge Agreement, dated as of
      April 28, 2009, made by Linn Energy, LLC and each of the other
      Obligors in favor of BNP Paribas, as Administrative
  Agent10
            .3*†
            
            —
            
            Linn
      Energy, LLC Change of Control Protection Plan, dated as of April 25,
      200931
            .1†
            
            —
            
            Section 302
      Certification of Michael C. Linn, Chairman and Chief Executive
      Officer of Linn Energy, LLC31
            .2†
            
            —
            
            Section 302
      Certification of Kolja Rockov, Executive Vice President and Chief
      Financial Officer of Linn Energy, LLC32
            .1†
            
            —
            
            Section 906
      Certification of Michael C. Linn, Chairman and Chief Executive
      Officer of Linn Energy, LLC32
            .2†
            
            —
            
            Section 906
      Certification of Kolja Rockov, Executive Vice President and Chief
      Financial Officer of Linn Energy,
LLC




†
            Filed
      herewith.




*
            The
      schedules to this agreement have been omitted from this filing pursuant to
      Item 601(b)(2) of Regulation S-K.  The Company will furnish
      copies of such schedules to the Securities and Exchange Commission upon
      request.  36
 Table of Contents


SIGNATURE




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, thereunto
duly authorized.




LINN
      ENERGY, LLC(Registrant)Date:
      May 7, 2009
            /s/  David
      B. RottinoDavid
      B. RottinoSenior
      Vice President and Chief Accounting Officer(As
      Duly Authorized Officer and Chief Accounting
  Officer)