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Billionaire investor and oilman-turned-hedge fund manager T.
Boone Pickens runs an energy-concentrated hedge fund, BP Capital.
His fund is generally invested 90% in energy-related stocks and
10% in commodities. With energy a hot-button topic, I thought it
worthwhile to take a look at how one of the top energy investors
and his hedge fund are investing for 2013 (see all of Pickens'
Pickens is upping his stake...
One of Pickens' biggest bets is on
Range Resources (
which is BP Capital's third largest holding after a 63% increase
in the shares his fund owned during the fourth quarter. The oil
and gas company now makes up 8.5% of the fund's portfolio. Range
Resources does appear a bit expensive, trading much higher than
the other oil and gas companies at 38 times earnings and 21.5
times cash flow, but its recent performance and growth prospects
suggest the premium is warranted. Range managed to post higher
production and lower unit costs last quarter, and the oil and gas
company has a relatively diversified asset portfolio between long
reserve-life Appalachian assets and large-volume Gulf Coast
properties. The company also plans to up production for 2013,
expecting 20% to 25% annualized production growth with its focus
on increasing liquids production (read about fracking related
concerns for Range).
Pickens' new positions...
was a new position and now makes up 4.8% of Pickens' portfolio.
The stock also pays a relatively solid dividend yield at 3.1%,
which only consumes 38% of earnings (read more about safe
dividend energy stocks). A couple compelling aspects about the
oil and gas company include the fact that Occidental trades
relatively in line with the industry, whereas it has an industry
leading 7% return on assets and relatively low long-term debt to
equity of 18%. Occidental has been divesting non-core assets and
focusing on upstream business; now the oil and gas company has
tailored its portfolio to long reserve-life properties with high
crude oil exposure.
Marathon Oil (
was another new position for BP Capital, making up 5.6% of its
portfolio. Marathon is another major oil and gas company that
pays a nice dividend, yielding 2%. This is on a 30% payout of
earnings. Exploration and production accounts for 90% of
Marathon's total income; however, the company is venturing into
oil sands mining and integrated gas. The sands segment mines and
extracts oil sand deposits in Canada, while the integrated gas
division transports products manufactured from natural gas,
including LNG. What's more is that both of these segments are
seeing robust growth. The oil sands business improved 9.1%
year-over-year last quarter and the integrated gas segment saw
income up 75% year-over-year.
Whiting Petroleum (
was 4.8% of Pickens' portfolio and he sold off his entire stake
in fourth quarter. Whiting has a 52% long-term debt to equity
ratio, relatively low for exploration and production companies,
and the company even hired Merrill to seek out possible
acquisitions. However, this was back in September 2012 and it
appears that M&A chatter is cooling off, one possible reason
that Pickens lost interest in the company. Whiting remains of the
top three oil producers in the Bakken Shale, but is also being
overshadowed by Kodiak and Oasis as major takeover candidates (
see which bets in the Bakken are best
). Pickens also already has a big investment with a Bakken Shale
EOG Resources (
made up 8.3% of Pickens' portfolio during the third quarter, but
his fund sold off its entire stake during the fourth quarter. EOG
has solid assets in two of the fasted growing shale plays in the
U.S., the Eagle Ford and Bakken, but EOG has high exposure to the
natural gas market, with natural gas accounting for around half
of the company's reserves. The positive note is that EOG has set
full-year 2013 crude oil production growth target at 28%.
Although Pickens dumped his EOG stake, I believe EOG is a
compelling growth story, with an industry leading 5-year expected
EPS growth of 20%. EOG trades below Range Resources at 16 times
earnings and has a long-term debt to equity of 44%, below Range's
Pickens runs one of the top energy-focused hedge funds. Did I
mention he's a billionaire? He's made some big bets of late on a
couple major oil and gas companies, Marathon and Occidental,
while also upping his stake in Range Resources, all solid
investments. On the other hand, his sales include the likes of a
niche Bakken Shale operator, Whiting, and mid-level, diverse,
operator EOG. Although there might be risks related to Whiting, I
still think investors can find value in EOG.
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