What is T. Boone Pickens Buying?

Crude oil may have sold off hard recently, but billionaire investor T. Boone Pickens still loves energy stocks. After all, he made his fortune by investing in energy, so he knows a thing or two about picking winners among the oil, natural gas and power producers. Recently, BP Capital released its holdings as of March 31, 2012 in a 13F filing. Let’s take a closer look at some of its most bullish bets.

Top 10 Holdings

Company	Ticker	Value ($000s)	Activity
BP PLC	BP	20,345	12%
ENCANA CORP	ECA	18,392	New
NATIONAL OILWELL VARCO INC	NOV	14,262	0%
DEVON ENERGY CORP NEW	DVN	13,513	36%
TRANSOCEAN LTD	RIG	13,068	47%
CHESAPEAKE ENERGY CORP	CHK	11,563	-12%
WEATHERFORD INTL LTD NEW	WFT	10,489	35%
SANDRIDGE ENERGY INC	SD	9,250	0%
DAWSON GEOPHYSICAL CO	DWSN	8,426	0%
SUNCOR ENERGY INC NEW	SU	7,063	0%

Encana Corp (ECA) is a new position in BP’s portfolio – the fund did not report owning any shares of Encana at the end of 2011 – but it is one of its largest holdings. During the first quarter of 2012, BP initiated a new position in the company worth $18 million. A few other hedge funds also have Encana in their 13F portfolios. At the end of last year, there were 19 hedge funds reported to own this stock. Steven Cohen’s SAC Capital Advisors had nearly $100 million invested in Encana at the end of last year. Martin Whitman and Ken Griffin are also bullish about this stock. See chart below.

Pickens likes Devon Energy Corp (DVN) as well. The stock is the fourth largest position in his latest 13F portfolio. Pickens boosted his stakes in Devon by 36% over the first quarter to $190 million. Devon is also quite popular amongst the other hedge funds we track. There were 32 hedge funds with positions in Devon at the end of last year. Devon has also shifted its focus from natural gas to oil and natural gas liquids. We think Devon is well positioned to benefit from the higher margins of liquids.  See chart below. 

Of course, just because BP Capital is natgas and alternative energy-heavy doesn’t mean that Boone Pickens’ fund is eschewing traditional oil firms. His fund picked up 188,000 shares of Valero Energy (VLO) last quarter, building up a $5 million stake in the country’s largest independent oil refiner. Valero has the capacity to process more than 2.8 million barrels of crude per day through its 14 refineries, in addition to a massive ethanol business and a 1,000-unit gas station business. See Chart below.

Pickens stuck to his strong suit in energy with new picks Encana (ECA), Calpine (CPN), Exelon (EXC), Valero (VLO), and NRG Energy (NRG). He also added to BP Plc (NYSE:BP), Devon Energy (NYSE: DVN), Transocean, and Weatherford International LTD. 

Other large positions in Pickens’ portfolio are BP Plc (BP), National Oilwell Varco Inc (NOV), and Transocean Ltd (RIG). Pickens did not increase or decrease his stakes in National Oilwell. He increased his BP position by 12% and his Transocean position by 47% over the first quarter. All of these stocks have attractive valuation levels, especially BP. It is currently trading at only 5.6x its 2013 earnings and has a dividend yield of 5.12%. 

BP is the most popular oil company among hedge funds, followed by Exxon Mobil. Value investor Seth Klarman had a $400+ million position in the stock at the end of the first quarter. Billionaires Ken Fisher and Ken Griffin are among the fund managers with large XOM positions. They both boosted their stakes in XOM during the first quarter. See chart below.

Posted courtesy of  Turn Key Oil.Com


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Don Hodges: Despite Fall in Oil Prices, Buy Haliburton, Devon and Sandridge

Don Hodges, portfolio manager for the Hodges Fund, says energy plays like Halliburton, Devon and SandRidge are still moneymakers despite the drop in oil prices.

SandRidge Targets Shift to Oil From Gas in Acquisition of Arena Resources

Arena Resources Inc.’s oil reserves were the main target of SandRidge Energy Inc.’s $1.55 billion acquisition of the company as the buyer turns its focus to crude from natural gas production. “Our oil reserves were the real attraction to SandRidge,” Arena Resources Chairman Tim Rochford said in an interview. Reserves stood at 69 million barrels of oil equivalent as of Dec. 31, he said. Oklahoma City-based SandRidge will pay $2.50 in cash and 4.78 SandRidge shares for each Arena Resource share, a 17 percent premium to Arena’s April 1 close of $34.26, the companies said yesterday.

The purchase is SandRidge’s second in West Texas since November, when it bought properties from Forest Oil Corp. for about $800 million. By buying Arena Resources, SandRidge becomes one of the largest producers of West Texas conventional oil and gas. SandRidge said it will primarily drill shallow, low-risk reservoirs in the so called central basis platform, a part of the Permian Basin in West Texas. SandRidge is shifting its focus to oil as crude rises and gas futures fall. The company explores for both, though SandRidge Chief Executive Officer Tom Ward said last month at the Howard Weil Energy Conference that drillers can make “10 times more money” producing oil rather than gas.

Transformation to Oil

“We’ve been transforming from strictly a gas company to an oil company over the last couple of years,” Ward said in an April 4 telephone interview. SandRidge fell 38 cents, or 4.8 percent, to $7.47 at 10:42 a.m. in New York Stock Exchange composite trading. The stock has dropped 21 percent this year. Tulsa, Oklahoma-based Arena Resources rose $2.70, or 7.9 percent, to $36.96. About 85 percent of SandRidge’s revenue at the end of 2008 came from natural gas, Ward said. The company’s current production is split at about 28 percent oil and 72 percent gas, while oil makes up about 54 percent of revenue, based on 10-year futures prices, he said.

SandRidge will be about 35 percent oil in terms of production, including the Forest and Arena transactions, Ward said today on a conference call with analysts and investors. The combined company will hold about 200,000 acres in the Permian Basin and 5,700 in other areas. The purchase will add to SandRidge’s cash flow in 2011, Ward said.

Gas Slump

“There have been a couple of hard years for gas,” because of the drop in demand that occurred in the recession, Ward said. “We’ve been looking for oil assets.” The agreement reflects SandRidge’s “contrarian style” of buying assets for terms that are below perceived value, said Scott Hanold, an energy analyst at RBC Capital Markets in New York. RBC values Arena Resources shares between $45 and $50, said Hanold, indicating that SandRidge is acquiring the company at a 10 to 20 percent discount.
Natural gas futures on the New York Mercantile Exchange have tumbled 27 percent this year. Crude oil is up 8 percent in the same period and 68 percent over the past year.

“Gas has been under pressure,” said Andy Lipow, president of consulting firm Lipow Oil Associates LLC in Houston. The Arena Resources acquisition, subject to the approval of shareholders of each company, is expected to close in June or July, Ward said. Deutsche Bank AG and Covington & Burling LLP are advising SandRidge, and SunTrust Banks Inc., Tudor Pickering Holt & Co., and Johnson & Jones PC are counseling Arena Resources.

Reporter Mark Shenk can be contacted at mshenk1@bloomberg.net.


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