Billionaires are well known for making big bets in time of markets in disarray and this oil & gas downcycle is no different. Early in the year many have been outspoken to not rush into new opportunities since they suggested this was not a “V” shaped recovery and they have been proven right.
After witnessing a huge fall from over $100 in July of last year to the low-$40 range in the early part of 2015, crude prices saw a brief rally and stabilized in the $55-60 range during the second quarter. Although crude prices have slumped significantly since then, the relief rally in the second quarter led to a lot of hedge funds increasing their exposure to crude oil.
Billionaire D. E. Shaw of hedge fund D E Shaw, according to the latest 13F filed by the fund for the reporting period of June 30, its U.S public equity portfolio was worth over $67 billion, with a significant portion of that being invested in oil refining companies.
D E Shaw is a New York-based quantitative hedge fund founded by David E. Shaw, a Ph.D. from Stanford University, in 1988. Since its inception, the fund has focused on using a quantitative analysis approach to choosing its investments and is now considered a pioneer and arguably the most successful quant hedge fund in the world.
D E Shaw increased its stake significantly in several of its other top oil refining stock picks during the second quarter, which included Marathon Petroleum Corp (NYSE:MPC), Valero Energy Corporation (NYSE:VLO), and Tesoro Corporation (NYSE:TSO).
Billionaire activist investor Carl Icahn has set his sights on a new target: an unprofitable energy company. Icahn has taken a 8.18% stake in natural gas exporter Cheniere Energy (AMEX: LNG), according to a 13D regulatory filing published on Thursday. Icahn believes the Cheniere’s shares are undervalued, according to the filing.
He plans to speak with the board about operations, capital expenditures, financings, and executive compensation. He may also seek shareholder board representation “if appropriate.”
Cheniere is currently building export complexes to ship gas abroad, and is hoping to begin exporting by later this year. It spent much of the last decade doing the exact opposite: expecting a gas supply shortage, the company had built import terminals.
Icahn disclosed an 8.5% stake in oil and copper producer Freeport McMoran and said he intended to have discussions with the company’s management about its operations and may seek board representation. For Icahn, who began buying Freeport shares in late July ahead of an over 50% drop in the company’s stock price and added to his stake in recent trading days, the investment increases his exposure to commodity sensitive businesses.
Icahn currently has a controlling stake in oil refiner CVR Energy CVI -2.63% and holds large positions in Chesapeake Energy CHK -2.34% and Transocean , two of the worst performing energy sector stocks in the S&P 500 in 2015.
Like Chesapeake Energy, Icahn may be a welcome activist for long suffering Freeport McMoran shareholders, who’ve seen an over 70% decline in the company’s value since its $9 billion takeover of deepwater oil drillers McMoran Exploration and Plains Exploration in late 2012. The deals transformed Freeport from a pure play copper producer to an integrated commodity giant, and may have rescued McMoran from financial distress.
It turns out that the “confidential information” that was withheld in the latest Berkshire Hathaway Inc. (NYSE: BRK-A) full holdings was that Buffett had really become much more selective. He and his managers decided to take on a very large stake in shares of Phillips 66 (NYSE: PSX) worth roughly $4.5 billion.
Some investors are going to think that this Buffett increase means that refineries are cheap. In his defense, Mr. Buffett and his portfolio managers can easily point out that valuations are low in this group — and we cannot ignore that refining has held up better than exploration and drilling.
There is still an obvious standout issue here. That is that Buffett obviously wants to have big exposure to the energy sector, but he and his team just may not be all that certain on how to position themselves through time on what portion to own. The Phillips 66 stake originally dated back to the ConocoPhillips (NYSE: COP) days.
Buffett has previously gone big into, and shortly back out of, Exxon Mobil Corp. (NYSE: XOM). Berkshire Hathaway owned 40 million shares or so, worth $3.5 billion, and then rapidly bailed out — long before the 2015 sell-off in Exxon and Big Oil went from small losses to major pain.
Suncor Energy Inc. (NYSE: SU) has been the one oil bet that has remained static for Buffett and his portfolio managers. Suncor’s weight inside Berkshire Hathaway was the same stake at 22.35 million shares at the end of June. The Suncor stake also had increased in late 2014 and it had grown each quarter from the 13 million shares in March of 2014. Suncor is one of the biggest players in Canada’s oil sands, and the interest here dates back to when Buffett and Bill Gates were both interested in the Canadian oil sands during the last energy boom.
What matters here is that Berkshire Hathaway is now more than a 10% stakeholder in Phillips 66. That means that the company will have certain regulatory guidelines when it comes to buying or selling more shares.