LINN Energy: Surviving the Lehman Collapse

Lehman Brothers’ bankruptcy and failure can’t be understated. The company’s demise had any number of victims, LINN Energy, an oil and gas company, not the least among them.

Lehman was LINN’s largest shareholder and also its banker. So when Lehman went down, the broker’s LINN holdings were liquidated and LINN’s hedges against future oil prices were seen as worthless, supposedly leaving the company vulnerable to the whims of the market. LINN stock suffered accordingly.

But LINN Energy Chairman and CEO Michael C. Linn, speaking to Cramer Monday, debunked any such notions about his firm. Lehman was a counterparty to only a “very small portion” of LINN’s hedges – LINN was smart and locked in prices before oil and gas came down – and those were immediately re-traded to other banks after Lehman’s collapse. Now Lehman owes $68 million for those hedges.

And as for being vulnerable to the market, LINN is 100% hedged against natural gas fluctuations through 2010 and oil through 2011. So the price of oil and gas could rise or fall by 15% and LINN’s 17% dividend yield would be unaffected, the CEO said.

With Linn guaranteeing the dividend, and the stock of a strong company only down because of the Lehman collapse, not any legitimate problem with the business, “I think this stock should be bought,” Cramer said.

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