Oslo-based Oslo Asset Management is a part of Norwegian investment management company Aker ASA that has over $3.5 billion in total assets. The fund managed by Oslo Asset Management grew in size from $212 million in U.S. equity holdings at the time of its 13-F Q3 filing to $367 million at the time of its recent 13-F Q4 filing last week.
Overall, the fund has returned 72.3% since start-up in 2005 to year-end in 2010, at a respectable long-term compounded annual return rate of 10.4% compared to returns on the S&P in the range of 2.5% over the same period. The fund holds a very concentrated portfolio deployed in only ten companies at the time of its Q4 filing. Also, within the oil & gas group, about 44% of its assets are deployed in oil & gas operations companies, another 28% is deployed in integrated oil & gas companies, and the remaining 28% is deployed in the oil well services & equipment group.
The following are Oslo's most bullish picks in the oil & gas sector that are also trading at a discount compared to their peers (see Table):
Devon Energy Corp. (NYSE:DVN): DVN is engaged in the exploration and production of oil, gas and natural gas liquids in the U.S. and Canada. Oslo added a new $35 million position in Q4, its second largest buy this quarter. DVN trades at a discount 9-10 forward P/E and 1.2 P/B compared to the averages of 20.8 and 5.3 for its peers in the U.S. oil & gas exploration and production group, while earnings are projected to increase at a modest 8.2% from $5.77 in 2010 to $6.76 in 2012. Recently, on January 3rd, DVN signed an agreement with Sinopec International Petroleum Exploration & Production Corp., exchanging one-third of its interest in five new venture plays for a $2.2 billion investment.
Under the agreement, Sinopec will effectively pay for 80% of the overall development costs during the carry period, and it is expected that through 2012 the companies will drill approximately 125 gross wells in the five properties. Besides reducing DVN's capital commitments to develop the five plays, the deal also points to the value that is locked up in the unconventional resource holdings of independents such as DVN.
Petroleo Brasileiro SA (NYSE:PBR): PBR is a Brazilian company engaged in the exploration, production, supply and distribution of oil and gas in Brazil and abroad. Oslo added a new $39 million position in Q4, its largest buy in the quarter. PBR has been in a strong rally since the beginning of the new year, up 17% YTD, and it trades at a discount 8-9 forward P/E and 1.0 P/B compared to averages of 16.5 and 1.3 for its peers in the international integrated oil & gas group, while earnings are projected to drop from $4.17 in 2010 to $3.47 in 2012.
Besides Oslo, a number of major firms increased their positions in PBR in Q3, including Goldman Sachs that added 6.4 million shares to its 4.6 million share prior quarter position, and Wellington Management that added 4.6 million shares to its 60.6 million shares prior quarter position.
Baker Hughes Inc. (NYSE:BHI): BHI provides wellbore products and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the global oil and natural gas industry. Oslo added $13 million in Q4 to its $22 million prior quarter position in the company. BHI is undervalued, trading at 8-9 forward P/E and 1.3 P/B compared to the averages of 14.2 and 3.3 for its peers in the oil field services group, while earnings are projected to increase at a compound 58.4% annualized rate from $2.20 in 2010 to $5.52 in 2012.
Besides Oslo, a number of mega and guru funds also increased their positions in BHI in the latest available Q3, including Capital World Investors that added 7.0 million shares to its 8.4 million share prior quarter position, and SAC Capital Advisors that added 2.2 million shares to its 1.3 million share prior quarter position.
The following are additional oil & gas plays in which Oslo added to its position in Q3, but due to the funds total U.S. equity investments going up from significantly from Q3 to Q4, the proportion of its total capital deployed in these positions declined from Q3 to Q4 (see Table):
Denbury Resources (NYSE:DNR): DNR is engaged in the acquisition, exploration, development and operation of oil and gas properties in the Gulf Coast region. Oslo added $10 million in Q4 to its $62 million prior quarter position. DNR shares trade at discount 13-14 forward P/E, and at 1.4 P/B, compared to averages of 20.8 and 5.3 respectively for the U.S. oil & gas exploration & production group.
BP Plc (NYSE:BP): BP is a Britain-based leading international integrated oil & gas company engaged in the exploration, production, refining, marketing and transportation of oil and gas globally. Oslo added $2 million in Q4 to its $67 million prior quarter position. BP trades at an attractive discount at 6-7 forward P/E and 1.2 P/B compared to the averages of 16.5 and 1.3 for its peers in the international integrated oil & gas group, while earnings are projected to fall slightly from $6.85 in 2010 to $6.49 in 2012. It trades near the bottom of its historic P/E range, in contrast to its peers, and its shares have still not recovered losses incurred after the April 2010 Deepwater Horizon oil spill in the Gulf of Mexico.
Hess Corp. (NYSE:HES): HESS is a global integrated oil & gas company engaged in the exploration, production, refining, transportation and marketing of oil & gas worldwide. Oslo added $14 million in Q4 to its $44 million prior quarter position. HES trades at 8-9 forward P/E and 1.0 P/B compared to averages of 7.7 and 1.3 for the U.S. integrated oil & gas group, while earnings are projected to rise at 16.2% annual rate from $5.14 in 2010 to $6.94 in 2012.
Halliburton Company (NYSE:HAL): HAL provides a variety of equipment, and maintenance, engineering and construction services to the oil and gas exploration and production (E&P) industry, including reservoir completion and drilling services. Oslo added $13 million in Q4 to its $20 million prior quarter position. HAL is undervalued, trading at 8 forward P/E and 2.5 P/B compared to averages of 14.2 and 3.3 for its peers in the oil field services group, while earnings are projected to increase at a compound 42.1% annualized rate from $2.05 in 2010 to $4.14 in 2012.
Note to Table: The companies selected to be included in both the Top Buys and Sells and Top Holdings categories in the Table were picked on both an absolute basis, i.e. the highest dollar amounts of buys and/or sells, as well as those amounts relative to their market-cap. That way, the list is not biased towards the largest companies in the group.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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