As many of you know, I have been highly critical of Linn for several years. Not for accounting irregularities, but because they diluted a highly accretive organic growth program in favor an acquisition spree. This was a result of high dollar hedges rolling off the books and being replaced with much lower hedges. At the time, the GW wells, given the then current NGL prices, were paying out in well under 1 yr, and were accretive to the tune of about 1.5 cents per unit to DCF. And mind you, that was at yr 3 once the well was in the flat part of the curve.
Now, this accounting issue is entirely different. I struggle to believe that Linn is a fraudulent company. While some may quibble about the accounting of the puts, the real question is, and no one seems to be answering, is what are the assets worth relative to the liabilities?
The market has gone completely irrational over the past couple of days regarding Linn. I think people have lost sight of the fact that while E&P MLPs tend to trade at a premium valuation (in part due to the cash distribution) that Linn still has a well diversified collection of relatively mature gas and oil assets. I think the point would be more simply put, what would Linn be worth if it opted to not pay a distribution and simply either redeploy all of its cash back into drilling or debt repayment. I'd argue that one could compare Linn's production volumes, undrilled acreage, hedge book and come up with some reasonable comps. I'd also argue that you could take a simple sum of the pieces valuation.
We know that on the private market, gas assets fetch ~$6,000 per flowing mcf (low decline, mature production). We know oil assets fetch $120,000 to $140,000 per flowing barrel. Valuing NGL production is more difficult because of the inability to hedge out more than 2 years, the varying composition of the stream and location of production. All of that being said, and stating the obvious, Linn is very cheap now... Very cheap..