LINN Energy's (LINE) Strategy May be Unusual, But Could Provide Robust Returns - Cramer
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LINN Energy (Nasdaq: LINE) chairman Mark Ellis recently sat down with stock sage Jim Cramer to clear up a few things about the company.
To start, Ellis noted that there was a misunderstanding about LINN's hedging strategy. Under the strategy, which doesn't follow standard accounting metrics, LINN likes to take commodity risk out of the equation when it does a deal. That's why the company likes to hedge oil prices for five years at a time. There have been no changes in LINN's account method to-date, Ellis notes, and the company is still paying regular quarterly dividends (currently $2.90 per share for an annual yield of 7.8 percent).
Ellis noted that there is a lot of potential locked-up in Berry Petroleum's (NYSE: BRY) oil fields. He also noted that the recent acquisition of BP plc (NYSE: BP) assets made sense because they weren't core for BP and LINN will get better use out of them.
Finally, Ellis noted that the U.S. has plenty of untapped oil and nat gas reserves, enough so that the U.S. could become energy independent should it adopt an energy policy that "made sense."
Cramer agreed with Ellis, noting that LINN subsidiary LinnCo (Nasdaq: LNCO) might also be a strong play given that it owns LINN shares and avoids tax rules that surround MLPs and tax-deferred accounts.
Shares of LINN are up 0.9 percent Thursday.
To start, Ellis noted that there was a misunderstanding about LINN's hedging strategy. Under the strategy, which doesn't follow standard accounting metrics, LINN likes to take commodity risk out of the equation when it does a deal. That's why the company likes to hedge oil prices for five years at a time. There have been no changes in LINN's account method to-date, Ellis notes, and the company is still paying regular quarterly dividends (currently $2.90 per share for an annual yield of 7.8 percent).
Ellis noted that there is a lot of potential locked-up in Berry Petroleum's (NYSE: BRY) oil fields. He also noted that the recent acquisition of BP plc (NYSE: BP) assets made sense because they weren't core for BP and LINN will get better use out of them.
Finally, Ellis noted that the U.S. has plenty of untapped oil and nat gas reserves, enough so that the U.S. could become energy independent should it adopt an energy policy that "made sense."
Cramer agreed with Ellis, noting that LINN subsidiary LinnCo (Nasdaq: LNCO) might also be a strong play given that it owns LINN shares and avoids tax rules that surround MLPs and tax-deferred accounts.
Shares of LINN are up 0.9 percent Thursday.
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