Linn Energy LLC (OTCMKTS:LINEQ) Could Be About To Mount A Surging Recovery

In bankruptcy situations, the majority of investors run for the hills. Dumps drive down prices, and those who can't get out in time, combined with a small minority who choose not to, are left holding what – based on price alone – is essentially a worthless chunk of stock. On some occasions, however, this worthless stock can recover, and become valuable once again. In these situations, those left holding, benefit from an often steep recovery.In some industries, this is very rare. Technology companies, for example, generally won't recover from bankruptcy. Biotech and health care companies also struggle (although there are some exceptions here). Commodities driven entities, however, are a different story. One day these companies can be going strong, and then a downturn in the underlying value of the commodities in which they trade can quickly deplete the value of their assets, and bring on the insolvency. What's important to recognize, however, is that the same can happen in reverse.If a commodities company is insolvent based on asset valuation, and the weak valuation is rooted in concurrently weak underlying commodity prices, then a reversal in the underlying commodity will translate to a necessary revaluation of the assets, and in turn, a reconsideration of the relative solvency of the entity in question.Over the past couple of decades, there have been numerous opportunities to pick up cheap Chapter 11 oil and gas stock, and hold for gains on energy price recoveries.We're seeing a number of these opportunities play out right now, and one we're watching is Linn Energy LLC (OTCMKTS:LINEQ).The Company delisted back in February, and a few months later, filed for Chapter 11, citing pretty much the exact situation as describable as its reasoning. After taking on considerable debt to expand, oil and gas prices fell sharply, and the assets it picked up as part of the expansion quickly lost value. High debt, low asset value and a capital intensive industry such as that in which Linn operates is a recipe for trouble, and so it played at as such.Fast-forward a little over six months, however, and WTI crude is up 100% on its February lows. Natural gas is up the same, if not a little more. This is forcing Linn to reevaluate its at-filing asset valuation, and this reevaluation looks set to make restructuring easier by a factor of multiples.There have been concerns among shareholders that common stock will get nothing in the event of liquidation – and this is true. However, liquidation is looking far less likely than it did just eight weeks ago, and those who held on to their holdings are being rewarded for doing so.Just have a look at the chart below to see our point:The question is, where do things go from here? Well, the good thing about a bit of extra volume and some upside momentum is that it draws speculative volume from those who otherwise might not be interested in taking a punt. This not only boosts prices, but it also offers volume that is available to absorb any selling, making corrections far less severe. After gaining early last week, Linn closed down heading into the final twenty-four hours, but this correction could have been a whole lot worse. We think the start of this week might be a nice opportunity to get in ahead of further gains as the company continues to benefit from rising commodity prices, from an ease of restructuring perspective.It has been a tough 12 months for the oil and gas space, but it is round about now that those who suffered start to emerge from the rubble, and we see Linn as one of those with the strength to do just that. It is far from risk-free, and bottom line, it is still a bankruptcy stock, but if oil continues to rise, and we expect it will, then so will the value of this company's assets. In turn, so will its chances of emerging from Chapter 11 a leaner, but in all likelihood stronger, player in the space. One to watch.Subscribe below and we will keep you updated as to our analysts' take on the restructuring, and as we find any other companies in the same sort of position going forward!Disclosure: We have no position in LINEQ and have not been compensated for this article.