After highly negative reports earlier in 2013, Barron's on June 15 published a follow-up analysis that argued Linn Energy had "come clean" on the costs it incurs to hedge its energy risk. In a June 4 filing with the SEC, Linn Energy said in a footnote that premiums paid for put options that settled in the first quarter cost $43 million.
The company, however, has said in recent investor presentations it doesn't expect to open additional put positions in 2013.
In the near term, a drop in Linn's dividend payout or expectations of a decline could hinder its efforts to buy Berry Petroleum (BRY) in an all-stock merger that the company projected will increase its distributable cash flow by 40 cents a share.
The merger appears to be a crucial piece of Linn Energy's strategy to bolster its dividend and energy production in coming years. In a presentation at the Howard Weil energy conference earlier in June, Linn Energy said Berry's assets would bolster the company's gas production by 30%, its liquids reserves by 54% and its provable reserves by 34%.Those energy assets and a boost to the company's free cash flow mean Linn Energy and LinnCo plan to boost their dividend payout to $3.08 a share on an annualized basis following the Berry Petroleum acquisition. Linn Energy said it sees its net asset value (NAV) at between $44.74 a share and $64.74 a share. A third-party adviser as part of the firm's merger efforts with Berry Petroleum sees the company's NAV at between $37.34 a share and $51.15 a share, the company said. Barron's and Hedgeye, however, argued the company's shares could only be worth between $5.48 a share and $18.17 a share. Hedgeye is conducting a conference call Tuesday afternoon to further outline its analysis. Linn Energy, meanwhile, continues to work to close its Berry Petroleum acquisition. Wells Fargo analyst Praneeth Satish expects the deal could come to a shareholder vote in the third quarter and could be a "meaningful catalyst" to Linn Energy's stock, which has fallen nearly 17% year to date. After falling as much as 4% in early Tuesday trading, Lynn Energy shares reversed to gains just under 1% at $30.80. LinnCo shares were trading about 2.5% lower to $34.29. -- Written by Antoine Gara in New York Follow @antoinegara