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The average oil and gas exploration and production company has risen over 35% since hitting the lows in early October last year, but it is still off about 8% from recent highs in April of last year. In our review in October of the investing activities of legendary or guru fund managers in the oil & gas exploration & production group, we suggested that the group was over-sold, and that it was time for long-term investors, given the high velocity of the drop, to look for opportunities in the sector. Since that article, the average oil and gas exploration company is up over 30%.

In this article, via an analysis (based on the latest available institutional 13-F filings) of the investing activities of these world's largest fund managers managing between $100 billion and over a trillion dollars, we identify the large-cap oil and gas exploration and production companies that are being accumulated and those being distributed by these mega managers. These mega funds, such as Fidelity Investments, Goldman Sachs, and Vanguard Group, together control almost a third of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets.

Most of the information is based on the latest available Q3 filings, but when Q4 filings are available, as in the case of a few of the 30 to 40 mega funds that have filed Q4's to-date, (including Vanguard Group, Bank of New York Mellon, Eaton Vance, and MFS Investment Management, that we have recently analyzed), we have instead used the more recent Q4 data for those funds. Taken together, these mega managers are bullish on the group, adding $2.82 billion to their $180.49 billion prior quarter position.

The following are the large-cap oil & gas exploration & production companies that these mega fund managers are most bullish about, that are also trading at a discount to their peers (see Table):

Noble Energy Inc (NYSE:NBL): NBL is a leading independent energy company, engaged in the acquisition, exploration, development, production, and marketing of crude oil, natural gas, and natural gas liquids in the U.S., and internationally in Argentina, China, Ecuador, Equatorial Guinea, the Mediterranean Sea, the North Sea and Vietnam. Mega funds added a net $92 million to their $8.70 billion prior quarter position, and together they hold 49.4% of the outstanding shares compared to their 23.0% weighting in the group.

The top buyers were Fidelity Investments ($282 million) and Ameriprise Financial ($99 million), and the top holder was Fidelity Investments ($2.48 billion). NBL trades at a discount 11-12 forward P/E and 2.4 P/B compared to averages of 15.2 and 5.2 for its peers in the U.S. oil & gas exploration & production group.

Whiting Petroleum Corp. (NYSE:WLL): WLL is an independent oil and gas company, with primary interests in the Permian Basin, Rocky Mountains, Mid-Continent, Gulf Coast and Michigan regions of the U.S. Mega funds added a net $190 million to their $2.37 billion prior quarter position, and together they hold 42.9% of outstanding shares compared to their 23.0% weighting in the group.

The top buyers were Goldman Sachs ($180 million) and Wellington Capital Management ($163 million), and the top holders were Wellington ($593 million) and Fidelity Investments ($403 million). WLL trades at a discount 12-13 forward P/E and 2.1 P/B compared to averages of 15.2 and 5.2 for its peers in the U.S. oil & gas exploration & production group.

The following are large-cap oil & gas exploration & production picks that mega funds are bullish about, but that are not trading at discounts compared to their peers (see Table):

Cobalt International Energy (NYSE:CIE): CIE is engaged in the exploration and production of oil primarily in the deepwater of the U.S. Gulf of Mexico, and in offshore Angola and Gabon in West Africa. Mega funds added a massive $2.61 billion to their $2.17 billion prior quarter position, and together they hold 38.3% of outstanding shares. The top buyer was Goldman Sachs ($2.38 billion), a new position for it in the quarter. CIE shares have been in a sharp rally since mid-December, up almost four-fold at their highs on Friday, buoyed by positive major developments in its exploration activities off Angola in West Africa.

EOG Resources (NYSE:EOG): EOG is engaged in the production and marketing of crude oil and natural gas in the U.S., Canada, Trinidad, U.K. and China. Mega funds added a net $26 million to their $15.50 billion prior quarter position in the company, and together they hold 51.8% of the outstanding shares, far greater than their 23.0% weighting in the group. The top buyers were T Rower Price ($349 million) and BNY Mellon Corp. ($222 million). EOG trades at 24 forward P/E and 2.4 P/B compared to averages of 15.2 and 5.2 for their peers in the U.S. oil & gas exploration and production group.

Encana Corp. (NYSE:ECA): ECA is engaged in oil and gas exploration and production in British Columbia, Alberta, Offshore Nova Scotia, WY, CO, LA and TX. Mega funds added $54 million to their $1.86 billion prior quarter position. The top buyer was Capital Research Global Investors ($50 million). ECA trades at 32-33 forward P/E and 0.9 P/B compared to averages of 19.7 and 1.4 for its peers in the Canadian oil & gas exploration & production group.

Southwestern Energy Co. (NYSE:SWN): SWN is engaged in the exploration and production of oil and natural gas primarily in AK, OK, TX and PA. Mega funds added a net $226 million from their $4.20 billion prior quarter position. The top buyer was Capital World Investors ($392 million), and the top holders were Capital Research Global Investors ($599 million) and Vanguard Group ($471 million). SWN trades at 20-21 forward P/E and 3.2 P/B compared to averages of 15.2 and 5.2 for its peers in the U.S. oil & gas exploration & production group.

Cabot Oil & Gas Corp. (NYSE:COG): COG is engaged in the exploration and production of oil and gas in Rocky Mountain and Appalachian areas and in the Andarko Basin in TX and LA. Mega funds added a net $25 million to their $1.78 billion prior quarter position. The top buyer was Janus Capital ($50 million), and the top holder was Vanguard Group ($387 million). COG trades at 37-38 forward P/E and 3.3 P/B compared to averages of 15.2 and 5.2 for its peers in the U.S. oil & gas exploration & production group.

The following are the large-cap oil & gas exploration & production companies that these mega fund managers are most bearish about (see Table):

  • Canadian company Talisman Energy (NYSE:TLM), engaged in activities in oil & gas exploration & production activities in North America, the North Sea and Southeast Asia, in which they cut $202 million from their $2.09 billion prior quarter position;
  • Canadian company Canadian Natural Resources Ltd. (NYSE:CNQ), engaged in oil & gas exploration & production activities in Western Canada, the North Sea and offshore in West Africa, in which they cut $194 million from their $8.53 billion prior quarter position;
  • Devon Energy Corp. (NYSE:DVN), engaged in the exploration and production of oil, gas and natural gas liquids in the U.S. and Canada, in which they cut $24 million from their $8.67 billion prior quarter position;
  • Denbury Resources (NYSE:DNR), engaged in the acquisition, exploration, development and operation of oil and gas properties in the Gulf Coast region, in which they cut $176 million from their $3.83 billion prior quarter position;
  • Andarko Petroleum Corp. (NYSE:APC), 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, in which they cut $60 million from their $16.64 billion prior quarter position; and
  • Penn West Petroleum (NYSE:PWE), an open-end investment trust engaged in the exploration, development and production of oil and gas, mainly in western Canada, in which they cut $37 million from their $1.11 billion prior quarter position.

Table

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General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets.

The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, 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.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top Large-Cap Oil And Gas Exploration Picks Of The World's Largest Money Managers