Dreary 4th of July Markets... Downtime Research: Linn Energy

We saw real technical strength in Silver yesterday, a return of consistent and stubborn buying not seen since late May. I was able to add to my position at 27.88 in a scrap, taking the total position to about 1/2 of what I consider to be a moderate conviction size.

Independence Day has brought sideways action, especially prevalent this afternoon as the usual trans-atlantic trend reinforcement has been lacking. For stocks and other risk assets, this is not necessarily a bad thing - a pause in price action can allow a trend to reload, consolidate and continue. I would not want to be short equities just now.

Read on for our new med/high conviction long - perhaps not at the right levels to enter, but nevertheless one I am keeping an eye on: Linn Energy (LINE).

Investment Highlights

• Near zero prospect spend, R&D related to existing assetsLinn generates the vast majority of its income from mature wells and fields. Their advantage here comes from a relatively comfortable cash position, far better than most rivals who are being forced to dispose of assets as inventory (oil, nat gas) prices plummet. Indeed, it must also be mentioned that they employ around 50 staff to oversee asset integration constantly, so there is considerable pressure to uphold this turnover.
• Linn employ a proprietary engineering (fracking) method.
  These details are clearly beyond the scope of a stock summary. In the Granite/Akota wash Stratigraphy Linn has completed wells in 6 seperate zone. This has efficiency implications of up to 20% on, for example, their new acquisition of BP's Kansas Hugoton Field for $1.2bn
• The only Oil & Gas company to be >100% hedged to product priceDepending on your view, this could be seen as a positive or a negative. For me, it is a very bold and encouraging step to declare: "we will take a Nat Gas price of $4 and still be profitable". Fixed prices also allow predictability of cash flows, lower liability costs. For Linn, the most profitable outcome is actually a $0 oil/gas price - would allow them to soak up more assets as stress cripples other big, established firms.

Here is the last 2 years price action.

Watch this space.