SAN FRANCISCO – Linn Energy LLC’s one-on-one breakout session drew plenty of interest on day one of the IPAA OGIS meeting in San Francisco that began Sept. 30. Investors and analysts homed in on the company’s stymied deal to buy Berry Petroleum Inc. of Denver. An SEC inquiry has held up the process as it analyzes Linn’s accounting practices.

Kolja Rockov, executive vice president and chief financial officer, said the company had filed an S-4 amended registration nearly two weeks previous. When it is declared effective, Linn can get its proxy process for the Berry transaction under way. “That’s the No. 1 process,” Rockov said. “It’s all about getting the proxy done.”

The SEC earlier this summer requested the preservation of documents and communications potentially relevant to, among other things, LinnCo’s proposed merger with Berry Petroleum Co., and Linn and LinnCo’s use of non-GAAP financial measures and hedging strategy. The Berry deal was originally announced in February. It was to be the first acquisition of a C-Corp by a master limited partnership (MLP).

While declining to comment on details of the process, Rockov said it had been a long one. “We’re trying to be as responsive as we can. Hopefully this last filing is a good one.” He said the typical time frame for a turnaround is two weeks, but up until now that has not been the case. “It’s really hard to predict what the timing will be,” he said.

“The way I would characterize it, is our goal moving forward with the proxy statement is somewhat independent of the SEC inquiry. …The inquiry could go well into 2014. But if you have an effective proxy statement you can get the Berry deal closed, you can access the debt and equity markets, and you are able to run your business.”

The inquiry focuses on premiums paid for derivatives, which Linn considered a capital expense. “It’s an issue of do you deduct that from future EBITDA or do you not,” Rockov said. “That seems to be the central issue. …We changed how we do EBITDA in the last filing to deduct those costs.”

Rockov said he has seen examples of companies handling the issue either way. He said that for investors, he thinks the important questions are whether Linn is executing operationally, and how it is generating enough cash through acquisitions or drilling to pay distributions.

Will Linn be able to close the Berry transaction, a deal that some observers have described as something Linn “has to” get done? An attendee at OGIS, Michael Peterson, managing director, energy research, at MLV, New York, thinks it is likely.

“Despite all the news flow, the Linn/Berry merger still has a solid chance of consummation,” he says. “From the perspective of BRY shareholders, who supported the tax-efficient exchange of BRY shares for LNCO shares, the fundamental economics of the deal are largely unchanged: One share of BRY will still garner one share of LNCO, which will still deliver monthly dividends at the same level from the same asset base at comparable commodity price levels.

“In addition, S-4 filings detail Berry’s active interest in selling itself dating back to mid 2011, evidencing management and the board’s longstanding interest in locating a sale or merger agreement. This perspective is enhanced by the lack of alternative suitors to emerge and fill the gap created in the potential absence of Linn. It therefore does not appear to be unreasonable, in my view, to conclude a transaction with Linn may still be Berry's best option.

Organizational changes already under way also augur for a closing, Peterson says. “Walking away from the deal with Linn would require more effort than just voting no for Berry. While the band could surely be put back together, leaving the company, its operations or its stock price exposed in the absence of a deal is not something Berry's management or board is likely to take lightly.”

Rockov described the first half of the year as tough — a “dark tunnel”— as the company was below its 1 coverage ratio and natural gas liquids prices faltered. In its second quarter, Linn posted a distribution coverage ratio of .89x, meaning only 89% of its distribution could be paid via internally generated cash flow. But Rockov said NGL prices have risen somewhat in the past couple of months, and that the company’s recent agreement to acquire Permian Basin properties for $525 million is accretive. Linn anticipates the Permian acquisition will close during the fourth quarter of 2013, and will be financed primarily with proceeds from a committed term loan.

“Anytime you’re hovering around 1 coverage people get pretty sensitive,” he said. If the company can close the Berry deal, it will be “a good bit over” that metric.

Rockov said joint ventures could be a big area of focus as it aggregates more and more assets. “It’s become something we really need to focus on,” he said. “In the past, we’d buy a lot of assets and start to think about JVs and then get distracted with the next thing we were going to buy. At some point, we need to put some man hours and effort into that process to make sure we’re getting the maximum value.”

In response to a question about what could be catalysts for Linn, Rockov said the biggest one is getting through the SEC process to get the Berry deal done. “It’s a great transaction, it boosts the coverage ratio, stabilizes the entity and proves up the concept that we have the tool to make a C Corp acquisition in a tax efficient manner—no other MLP has that right now.”

The second catalyst is operational execution, he said. By drilling good wells, and with NGL prices perhaps rebounding, Linn hopes to turn what were headwinds into tailwinds.