Updated from 11:45 a.m. ET to clarify Linn Energy's hedging activities and include afternoon share prices.
NEW YORK ( TheStreet) -- Leon Cooperman of hedge fund Omega Advisors is comfortable with his investment in Linn Energy (LINE), amid analysis from major media and independent research firms that the oil and gas driller may be unable to support a high-yielding dividend and is only worth 50% of its current share price.
"Omega Advisors, Inc. is comfortable with our investment in Linn Energy, we are convinced of the professionalism and integrity of the company's management, we are optimistic about the company's future growth and financial performance," Cooperman wrote in a June 17 letter addressing Omega's investment in Linn Energy.
In his letter, Cooperman pointed out that Linn Energy has mostly hedged its energy production with costless swap contracts, potentially undermining claims that the company is under-reporting costs it incurs to hedge its energy risk. Such costs, Barron's argued, could mean Linn Energy is unable to maintain its dividend payout.Omega Advisors is Linn Energy's largest outside investor, with a 3.05% holding in the company's shares worth more than $200 million, according to March 31 Securities and Exchange Commission filings compiled by Bloomberg. Linn Energy is also Omega's fifth-largest investment, after stakes in Sprint Nextel (S), AIG (AIG), SLM Corp. (SLM) and SiriusXM Radio Nextel (SIRI), the data showed. Cooperman argued Linn Energy has capitalized the costs of its energy hedges in accordance with Generally Accepted Accounting Practices (GAAP). Non-GAAP metrics such as earnings before interest, taxes, depreciation and amortization (EBITDA) that are often cited by Linn Energy and investors, by definition, would not include the capital expense of put contracts, Cooperman's letter stated. Finally, Cooperman highlighted that independent third parties Citigroup and Credit Suisse have valued LinnCo (LNCO), a subsidiary Linn Energy is using to acquire Berry Petroleum, at $35.92 a share and $39.64 a share. Those valuations are well above Linn Energy's current share prices and, according to Cooperman, take into account any tax liability the company would face in its proposed acquisition. "
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