Red Bank, NJ-based energy focused hedge fund Lucas Capital Management, founded in 1996 by father-and-son team Geroge Lucas Jr. and his son Russell Lucas, has $730 million in assets deployed across four hedge funds, three private equity funds and their legacy wealth management business. Per its latest Q3 13-F filing with the SEC, it has $272 million deployed in U.S. equities. About 62% of the fund's equity assets are invested directly in the stocks of companies trading in the energy sector; another 21% is invested in financial companies, including investments in energy trusts, ETFs and the like; and the remaining 17% or so in natural resource, utility and other companies. The fund operates on the premise that we are entering a long cycle in which the supply of energy and other resources will be hard pressed to meet growing global demand, leading to a period of generally strong commodity prices. Thereby, they generally operate as an asset oriented value buyer, seeking to identify companies which offer the lowest cost, and most durable reserves and cash flow.
Based on a review of the latest Q4 SEC 13-F filing, we determined that Lucas Capital Management is bullish on the following energy stocks, of which BRY and MRO trade at a discount compared to their peers, and APC trades at a slight premium to its peers (see Table):
Berry Petroleum Co. (BRY): BRY is an independent energy company engaged in the exploration and production of crude oil and natural gas in CA, UT, TX and CO. Lucas adding a new $5 million position in Q4, its largest new position in the quarter. The stock has been a strong performer lately, up almost eight-fold from the 2008/09 lows as earnings have had a strong upward trajectory rising from $1.02 in 2009 to a projected $4.20 in 2012. BRY trades at 10-11 forward P/E and 2.0 P/B compared to averages of 20.6 and 5.2 for its peers in the U.S. oil & gas exploration & production group.
Marathon Oil Corp. (NYSE:MRO): MRO is a U.S. integrated oil & gas company engaged in worldwide exploration, production, refining, transportation and marketing of crude oil and natural gas. It operates through three segments: Exploration & Production, Oil Sands Mining, and Integrated Gas. Lucas added a new $4 million position in the company in Q4. MRO earnings and shares have been in recovery mode since last October after a massive sell-off in the prior three months during which shares lost almost half their value; currently its shares trade at a slight discount 8.3-8.4 forward P/E and 1.3 P/B compared to averages of 8.6 and 1.5 for its peers in the U.S. integrated oil & gas group.
Andarko Petroleum Corp. (NYSE:APC): APC is one of the world's largest independent oil and gas exploration and production companies, with a majority of its reserves located in the U.S., in the mid-continent in KY, OK and TX, offshore in the Gulf of Mexico, and in AK. Lucas added a new $3 million position in the company in Q4. APC trades at a premium 23-24 forward P/E and 2.1 P/B compared to averages of 20.6 and 5.2 for its peers in the U.S. oil & gas exploration & production group.
The following are energy companies that Lucas Capital Management is bearish about:
Occidental Petroleum (NYSE:OXY): OXY is engaged in the exploration and production of crude oil and gas worldwide. It operates in three segments: Oil and Gas; Chemical; and Midstream, Marketing, and Other. Lucas cut $9 million in Q4, its largest sell, from a $31 million prior quarter position. OXY reported its Q4 just last week on Wednesday, in which it handily beat both analyst revenue and earnings estimates; its shares currently trade at 10-11 forward P/E and 2.2 P/B compared to averages of 8.6 and 1.5 for its peers in the U.S. integrated oil & gas group.
Sandridge Energy Inc. (NYSE:SD): SD is an OK-based independent oil and natural gas company, with their primary areas of focus being West Texas, the Cotton Valley Trend in East Texas and the Gulf Coast. Lucas dropped its entire $6 million prior quarter position in Q4. SD is currently generating losses, and it trades at 1.6 P/B and 2.4 PSR (price-to-sales ratio) compared to averages of 5.2 and 7.4 for its peers in 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. Lucas cut $9 million in Q4, its largest sell, from a $12 million prior quarter position. Its shares trade 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 $6.53 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. However, the company recently, on January 19th, agreed to pay the Justice Department a massive $20-$25 billion to settle all criminal and civil charges related to the Deepwater Horizon oil spill, and it remains to be seen if the removal of that overhang will help left its share price to a fairer valuation versus its peers.
Exxon Mobil Corp. (NYSE:XOM): XOM is a world leader in energy exploration and production, engaged in the exploration, production, transportation and sale of crude oil and natural gas worldwide. Lucas cut $6 million in Q4 from its $13 million prior quarter in the company. XOM, along with many of its peers, is trading within striking distance of its highs for the year; its shares trade at a discount 10-11 forward P/E and 2.6 P/B compared to averages of 16.5 and 1.3 for its peers in the international integrated oil & gas group, while earnings growth is projected at a strong 15.9% rate from $6.22 in 2010 to $8.34 in 2012.
Other major oil & gas companies that Lucas is bearish on, based on its trading activity in Q4, include U.S. oil & gas exploration & production company Whiting Petroleum Corp. (NYSE:WLL), in which it cut $5 million in Q4 from its $10 million prior quarter position; international oil & gas exploration & production company Apache Corp. (NYSE:APA), in which it cut $4 million in Q4 from its $5 million prior quarter position; integrated oil & gas company Chevron Corp. (NYSE:CVX), in which it cut $4 million in Q4 from a $5 million prior quarter position; U.S. oil & gas exploration and production company Plains Exploration & Production (NYSE:PXP), in which it cut $3 million in Q4 from its $5 million prior quarter position; and Enerplus Corp. (NYSE:ERF), an independent oil & gas production company with resources in Western Canada and the U.S., in which it cut $3 million in Q3 from a $5 million prior quarter position.
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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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