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Controversy is something that most investors like to avoid. At the least hint of anything untoward happening within a company, many opt to pick up their marbles and go home. However, there are instances in which controversy creates opportunity. And I think that may be the case with Linn Energy (NASDAQ:LINE).

Linn Energy is an oil and natural gas producer with a $7.7-billion market cap, which operates as a master limited partnership. (Karim Rahemtulla has discussed the special tax incentives involved with MLPs like Linn Energy, here.) Publicly traded since 2006, Linn Energy has a simple (but effective) business model: It buys up mature energy properties and milks every single last drop of profit from them.

To protect those assets, the company has been following an aggressive hedging strategy that's proven invaluable … and controversial. In addition to its traditional hedge book, it's using derivative trades - including in-the-money puts - as a further hedge against commodity price movements.

These trades make it possible for the company to realize a premium on its production. In fact, the derivative trades have allowed Linn Energy to earn $5 per million British thermal units for its natural gas … Even though the market price for natural gas has been $4 or lower.

Controversy Raises its Ugly Head

Noted market authority Barron's has taken Linn Energy to task for what it calls "aggressive" accounting practices. The publication claims that Linn Energy has been accounting for only the gains on its put-trading activities … and has been ignoring the costs of these trades on its books.

These stories have brought out the bears … big time. And that includes at least one large hedge fund shorting the company. The bear attacks have battered Linn Energy shares, as well as its subsidiary, Linn Co. (NASDAQ:LNCO).

In fact, since the first article appeared in May, shares of LINE are down roughly 35% since the April highs. That's a major shellacking - especially for investors who jumped in for its nice 8.5% yield. However, as the old adage goes, "Strike when there's blood in the streets."

A Perfect Buying Opportunity?

Despite the negative press, Linn Energy has several things going for it, like the company's impending merger with another energy producer, Berry Petroleum (NYSE:BRY), which makes Linn Energy more than a value play.

Berry brings to the table some premium assets - including 1.65 trillion cubic feet of proven reserves of natural gas and natural gas equivalent - and will boost Linn Energy's reserves by 36%. In addition, Berry's probable and possible reserves (the grade of reserves just below "proven," but above merely "estimated") could add an additional 3.8 trillion cubic feet of natural gas to Linn Energy's books.

The Berry deal will also pump up Linn Energy's oil reserves - as 67% of Berry's energy assets are oil. Not to mention that, since its inception, Linn Energy has grown (across the board) year after year. Based on total reserves and production, the company has never had a down year. And the company has consistently increased both earnings and distributions to shareholders.

In fact, the next bump in distributions is scheduled to take effect this July, in anticipation of the closing of the Berry deal. Naturally, the bears are betting the deal will get derailed … but there's little evidence to support that conclusion.

In fact, the three companies involved - Linn Energy, Linn Co. and Berry - have issued a joint press release essentially stating that things are on track. Any worries about the success of the merger came from an announcement that the deal wouldn't be closing at the end of the second quarter - but rather in the third quarter this year.

The delay is the result of an additional piece of filing required by the SEC before going forward. And with the deal being structured in a way that gives Berry shareholders tax-free gains on the merger, I don't see anyone objecting too vociferously to the deal.

After the current drubbing, shares are in perfect position for what could be a nice move forward. With an average analyst target price right around $42, getting into Linn Energy at current prices could mean a gain of roughly 42%.

Combine that with a hefty distribution yield of nearly 10% and shares of Linn Energy - or Linn Co. - could be just what you're looking for. And "the chase" continues.

Source: Shady Accounting Makes This Stock Attractive?