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. "
We are of the view that the shares are undervalued and offer an attractive total return proposition -- dividend plus change in capital," Cooperman wrote in a follow up e-mail to TheStreet. Currently, Linn Energy is a battleground stock in an energy sector filled with activist investor dramas, CEO change and corporate breakups. At issue is whether Linn Energy can maintain or even expand its high-yielding quarterly dividend payout of 72 cents a share and whether a potential drop in the dividend would chip at the company's valuation. Barron's and independent research firm Hedgeye Risk Management both argued that Linn Energy isn't properly expensing the costs of its energy price hedges, which have so far helped the company either maintain or grow its dividend for 29 consecutive quarters. They argued unrecognized costs of put contracts Linn Energy has to hedge its natural gas production at $5 per mcf undermine the company's ability to fund its dividend. Barron's and Hedgeye both questioned whether the costs of those put contracts, a weak quarter of energy production at Linn Energy and high capital expenditure put the company at risk of lowering its dividend. Investors such as Cooperman appear to discount such a scenario. Jim Cramer, founder of TheStreet and contributor to RealMoneyPro, currently owns Linn Energy shares in his charitable trust. Cramer has supported Linn Energy and invited CEO Mark E. Ellis on his CNBC show Mad Money to rebut Barron's analysis.