Latest Attack (courtesy of rip) reveals stark ignorance or intentional deception
There were two key mistakes in this bombastic post that bear on available cash to pay distributions/dividends, advanced maintenace and facilities development, and property acquistions, as LLC management determine to be inb the best interests of unit/share holders. Central to the arguments made were use of GAAP and EBITDA-- and those of you who recall the many, many mistakes made by SA and Motley Fool writers over the years who never bothered to study how the company earns its income will see these mistakes repeated, only with the passion (fright) of a Short.
How many times have we all discussed that GAAP produces meaningless results for the hedging program, because Linn does not play derivatives as a trading desk, but backs its hedges with products, and when a hedge price exceedes production costs, as has thus far always been the case, Linn makes money, granted it may have a hypothetical opportu niy cost when oil spikes from time to time over a hedge limit. The SEC has simply not gotten arround to eliminating meaningless GAAP for producers, whereas it is usful for nonproducing commodities traders.
This Short also makes a big deal about misuse of EBITA, but if the Short had done adeqaute research, it quicly would have become apparent that Linn does not use EBITA for free cash flow reporting, but Adjusted EBITDA that does subtract the costs reducing available cash (every single Linn presentation repeates a slide showing that it is using Adjusted EBITDA, not the strawman EBITDA reporting the Short is attacking as a misrepresentation).
Linn's successful history of passing DD review by bond and unit/stock underwriters, plus ongoing review by many qualified analysts demonstrates its accounting is practically sound. Odd the they Whiel analyst suddenly had a qualm about cash flow after years of seeing the same auditing treatment, and truly suspicious when coupled with a short attack--hmmmmm.
As for myself, I've not had any Linn for a year, simply because I have been willing to take the risk of investing in a few very high yielding hibrid MREITs which properly frighten most investors (these are accounting beasts, and GAAP also causes them mischief by typically creating paper losses that roll off when the mortgage portfolkios mature).
Linn also has some possibly exciting shale formations for oil in addition to the Hogshooter, but I do not have hard facts about what possibly lies lurking deep in the Permian basin.
The shorts may have already cleared, as th immediately cash flow accretive Berry merger tyhat makes Linn oil heavy, with the promise of a divi increase on the way, has made any arguments they made over cash flow irrelevant, and their short position untennable.
Not sure why the "analyst" at weill is being given any credibbilty. If you look at his Linkedin in profile, you will see he has not been an analyst very long at Weill. In fact his experience is with AECOM, an engineering company. Here is his background
David Amoss, CFA's Overview
Current Equity Research at Howard Weil
Past Associate, Economics at AECOM
Analyst at Economics Research Associates
Education University of Georgia - Terry College of Business
David Amoss, CFA's Experience
Privately Held; 11-50 employees; Research industry
May 2010 – Present (2 years 10 months)
Public Company; 10,001+ employees; ACM; Civil Engineering industry
September 2007 – May 2010 (2 years 9 months)
Economics Research Associates
Privately Held; 51-200 employees; Real Estate industry
January 2007 – August 2007 (8 months)
David Amoss, CFA's Education
University of Georgia - Terry College of Business
1999 – 2003
David Amoss, CFA's Additional Information
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