Shorts Attack Linn

Indie Research

A couple of short sellers have attacked Linn Energy (LINE), with Bronte Capital among one of the most vocal, putting a response on their blog attacking Linn.

However, it took us only about five minutes of research from BullMarket.com to prove one of Bronte's main tenants wrong.

In its blog, Bronte called the company's management liars, when Linn said "Out of 40+ hedging transactions over the last 10 years, only 7 were purchased "in the money."

"I am just going to call BS on this," Bronte's John Hempton proclaimed. "The company is claiming that it purchased substantial numbers of below market hedges. I want to point out the average price of gas sold after hedging in 2009, 2010 and 2011 was $8.57, $8.22 and $8.20 respectively. It is an awful long time since the natural gas prices -- even forward natural gas prices -- let alone say five year strip natural gas prices were that high. There is simply no way that these prices were obtained except by purchasing substantially in-the-money positions with large amounts of cash."

Well here is evidence from the company's August 2008 conference call that Bronte is just plain wrong. Remember that Linn hedges 3-5 years out into the future.

"Q): Hey guys, I actually have two questions for you. The first one is on the hedging, I think it's great that you rolled up the hedges on the oil production. Just curious why you didn't look to do anything in gas, with the big spike we had in gas recently as well?

"A) Michael Linn: Well, we looked at both of those, Dan, but quite frankly, gas had moved lower by the time we were executing these trades. So, if gas moves up again higher, I think we would look at that seriously because I think we picked some significant value. But with gas moving down towards the $9.00 range with our hedges at $8.50 there's really not much to be gained there."

Bronte conveniently forgets that natural gas prices traded well above $10 at points in 2008 when Linn was hedging these positions. So, who is spewing BS now?

For more on Linn Energy, the questions surrounding its hedge accounting, and another short seller's "thesis" on the stock, visit BullMarket.com. BullMarket.com also has coverage of numerous other MLPs, including Enterprise Products Partners (EPD), Kinder Morgan (KMP), El Paso Pipeline (EPB), and Plains All America (PAA), among others.

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