- Linn is over-estimating the value of its undeveloped "Granite Wash" acreage in Oklahoma and West Texas by as much as 10 times. Linn is under-estimating its lease operating expenses for maintaining production at current levels, artificially inflating earnings. Berry directors are taking shares of Linn for accepting this change in control, rather than Linnco shares their shareholders are taking.
NEW YORK ( TheStreet) -- Back when I was a young reporter at the Houston Business Journal, an oil boom was on. Anyone who could bring up oil could make a fortune. Most of the intrigue in the business involved seismic testing, leasing in the Gulf and the hunt for "elephant" finds in remote locations. The boom ended when prices crashed early in the 1980s and consumers cheered. With fracking you can get oil and natural gas just about anywhere. The easiest places to get it are where it was found before, like the Eagle Ford Shale play in Texas or the Utica Shale play in Ohio. But fracking has also created new finds, especially gas finds like the Marcellus Shale on the east coast and Oklahoma's Granite Wash. Keeping money flowing toward both development of properties and to shareholders always leads to creative accounting. Fracking isn't like other forms of drilling -- you have to keep spending in order to keep pumping. Thus, with the ongoing natural gas glut some of the numbers start looking dicey. The action has thus moved from the engineers to the finance guys. Forensic accounting is the new math. All the bears are looking for the next Chesapeake Energy ( CHK), the next acquisition-minded driller whose numbers may not add up. If someone is under-estimating their costs and over-estimating their asset values, shorts are going to kill dreams. Hedgeye Research is currently trying to kill the dreams of Linn Energy ( LINE). Linn announced in February it is buying another big player, Berry Petroleum ( BRY), for what it says is $46.24/share. This would come in shares of Linnco ( LNCO), a company Linn created for the purpose of raising capital.
This is big boy poker, and tempers can get frayed. Linn management has been arguing against Hedgeye on Jim Cramer's "Mad Money" program and buying their own shares, leading Hedgeye CEO Keith McCullough to start tweeting against Cramer, and for the rest of us to stock up on popcorn. (Linn Energy is a holding in Cramer's charitable trust, Action Alerts Plus.) Some small investor advocates, including Tim Plaehn, who writes for Seeking Alpha out of Asheville, are also pushing management's case. as Fuelfix reports. Exploration companies need the higher prices exports bring to deliver on their promises to shareholders. The natural gas glut killed Chesapeake's dreams, and they're going to kill other dreams before it's over. At the time of publication the author had no position in any of the stocks mentioned. Follow @danafblankenhor This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.