Billionaire T. Boone Pickens is one of the most well-known investors in the energy space. He has years of experience in the oil and gas industry, and founded his investment fund BP Capital in 1997. In this article, I will be discussing some of the top Oil and Gas holdings of BP Capital from its latest 13F filing with SEC.
BP Plc (BP): BP Capital holds 402,111 shares of BP Plc. BP, the international Oil and Gas Company, operates its products in more than 80 countries, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products. The Company operates two segments: Exploration and Production, and Refining and Marketing. BP's EPS forecast for FY11 is $6.60 and FY12 is $7.00.
BP is currently trading at 6.76x forward earnings. The Gulf of Mexico spill in 2010 and the proposed Russian Arctic in 2011 have clearly weighed on BP shares. However, I believe most of the negatives are already priced in at these levels. Going forward I believe risk-rewards are skewed towards and upside. Given BP's diverse oil and gas portfolio and financial flexibility, I believe it can easily weather any reasonable cost estimates for the spill.
Transocean Ltd (RIG): BP Capital holds 162,900 shares of Transocean Ltd. Transocean Ltd is the world's largest drilling contractor and has a leading share in the deepwater market. The company owns ultra-deepwater, deepwater, mid-water, and jackup rigs. Transocean's ultra-deepwater and deepwater rigs represent its largest source of earnings. The company is based in Switzerland.
Transocean recently provided positive February fleet update. The company announced that it was awarded three new short-term mid-water contracts at higher-than-expected rates. Additionally, RIG also announced that its 2012 downtime decreased by 17 days, which indicates an incremental improvement from the previous downtime updates.
With positive news on the operational front, the focus is now on the Macondo trial. A recent ruling upheld RIG's indemnity provisions, putting the company in a strong position to go in for a settlement with BP. Any favorable settlement on this front could be a positive catalyst for the stock.
Exxon Mobil Corporation (XOM): BP Capital holds 94,310 shares of Exxon Mobil Corp. Exxon Mobil Corporation is an American multinational oil and gas company. It is the world's largest publicly traded oil company. It engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products, as well as transportation and sale of crude oil, natural gas, and petroleum products.
Despite a Q4 2011 earnings miss and disappointing production numbers, I am positive on Exxon Mobil from the long-term perspective, given its history of solid and consistent shareholder returns. Exxon is characterized by world-class assets, strong cash flow generation, low leverage, low earnings volatility and leading cash distribution to its shareholders. Looking forward in 2012, it is expected to generate the highest free cash flow yield among large-cap oil majors and return ~ 7% to the shareholders in the form of dividends and share buybacks.
Looking at its medium-term prospects, there are some major capital projects lined up until 2015 (Kearl, Kashagan Phase I and Gorgon), which are expected to drive growth. Further, with the XTO acquisition and increased natural gas production, Exxon seems to be driving out marginal operators and consolidating the natural gas industry, rationalizing long-term production. Exxon is currently trading at a P/E slightly below its historical average and I would recommend buying the stock from a medium- to long-term perspective.
Occidental Petroleum Corporation (OXY): BP Capital holds 57,056 shares of Occidental Petroleum Corp. Occidental petroleum has run up significantly in few months. It is trading at ~$99 now, up 47% from its October lows of $68. The key drivers for the upside were recovery in oil prices and improved expectations on the company's development program in California. At these levels, I believe investors are fully pricing in the positives and any potential for the further stock price appreciation looks quite bleak in the near term. Hence, I would recommend avoiding this one.