The natural gas landscape has been fundamentally altered by the exploitation of shale gas using induced hydraulic fracturing or 'fracking.' Shale gas is natural gas formed from being trapped within shale formations, and 'fracking' is the technique used to release petroleum and natural gas by creating fractures from a wellbore drilled into reservoir rock formations. Partly as a result of the abundant supply of natural gas created by the 'fracking' of shale gas formations, and partly due to a result of the mild winter, the price of natural gas has plummeted more than 50% in the U.S. over the past year to less than $2 per MMBtu, and well below recent multi-year highs in the $16 range in 2005.
This game changing event has the potential to transform the U.S. into not just being self-sufficient in energy, and hence relatively free from getting entangled in overseas conflicts, but actually make us into a net energy exporter, that is, only if politicians in Washington can summon the vision and the will to allow energy companies to make that happen.
In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the natural gas-focused energy exploration & production companies that are being accumulated and those being distributed by legendary or guru fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, that are well-known for their savvy in picking winning stocks year after year. The investing activities of these guru fund managers in non-natural gas focused large-cap oil & gas, and small and mid-cap oil & gas exploration & production companies were discussed in a prior article, that can be accessed by clicking on the above hyperlink and also from our author page (for more general information on these guru funds, please look at the end of the article).
The following are the natural gas-focused energy exploration & production companies that these guru fund managers are most bullish about, that are trading at a discount to the peers in their group (see Table):
Ultra Petroleum Corp. (UPL): UPL is an independent, exploration and production company focused on developing its long life, tight-gas sand resource play in the Green River Basin in WY. Current production comprises 97% gas and 3% crude oil or liquid hydrocarbons, and about 96% of its proved reserves is natural gas. Guru funds together added a net $23 million in Q4 to their $217 million prior quarter position in the company, and taken together guru funds hold 8.3% of the outstanding shares. The top buyer was Chicago-based Harris Associates LP, manager of the Oakmark Funds, with $55 billion in 13-F assets ($24 million), also the top holder at $204 million.
UPL is expected to release its Q1 (March) report on Wednesday, before the market opens. In its most recent Q4, reported in mid-February, the company missed on both revenues and earnings. Its shares currently trade near multi-year lows, and at a discount 17.1 forward P/E and 1.9 P/B compared to averages of 17.8 and 5.3 for its (mid-cap) peers in the U.S. oil & gas exploration & production group, while earnings are projected to fall from $2.52 in 2011 to $1.11 in 2013. Furthermore, of the 25 analysts that cover the company, five rate it buy/strong buy, 19 rate it neutral, and only one rates it at a sell, with a mean price target of $29, more than 50% above current prices in the $19 range.
Comstock Resources Inc. (CRK): CRK is an independent energy company engaged in the acquisition, exploration, development and production of oil & natural gas properties, concentrated mainly in the Gulf of Mexico, Southeast Texas and East Texas/ North Louisiana regions. About 85% of its reserves are natural gas, which also accounts for 95% of its current production, with crude oil accounting for the remaining 5%. Guru funds together added a net $2 million in Q4 to their $34 million prior quarter position in the company, and taken together guru funds hold 4.5% of the outstanding shares. The top buyer was guru Charles Royce's small-cap focused mutual fund company Royce & Associates, with $30.5 billion in 13-F assets at the end of Q4 ($4 million), and the top holders were Royce ($18 million) and legendary billionaire investor Ken Griffin's Chicago-based hedge fund Citadel ($15 million).
CRK reported its Q1 (March) on Monday, missing on both analyst revenue and earnings estimates. Its shares have lifted more than 50% from the multi-year lows that it set earlier this year, in January, and currently trade at a 7 forward P/E and 0.8 P/B compared to averages of 15.9 and 5.3 for its (small-cap) peers in the U.S. oil & gas exploration & production group. Analysts are bullish on the company, putting a price target of $22, well above the current $17 price; and of the 18 analysts that currently cover the company, nine rate it buy/strong buy and the remaining nine rate it at neutral.
The following are some additional natural gas-focused energy exploration and production companies that guru fund managers accumulated in Q4 (see Table):
- Encana Corp. (ECA), engaged in oil and gas exploration and production in British Columbia, Alberta, Offshore Nova Scotia, WY, CO, LA and TX, with 94% of its proved reserves being natural gas, in which guru funds together added a net $341 million in Q4 to their $212 million prior quarter position in the company;
- Cabot Oil & Gas Corp. (COG), that 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, with 96% of its reserves and 95% of its current production being natural gas, in which guru funds together added a net $50 million in Q4 to their $78 million prior quarter position in the company;
- Southwestern Energy Co. (SWN), engaged in the exploration and production of oil and natural gas primarily in AK, OK, TX and PA, with almost 100% of its estimated proved reserves being natural gas, in which guru funds together added a net $37 million in Q4 to their $412 million prior quarter position in the company; and
- Enterprise Products Partners (EPD), an MLP engaged in transportation, gathering, processing and storage of natural gas, natural gas liquids and crude oil, in which guru funds together added a net $1 million in Q4 to their $32 million prior quarter position in the company.
Besides these, guru fund managers based on their Q4 trading activity indicated that they are bearish on the following natural gas-focused energy exploration and production companies:
- Chesapeake Energy (CHK), that is an independent oil and gas company, with its primary operating assets in mid-continent region of Oklahoma, western Arkansas, southwestern Kansas and the Texas panhandle, with 83% of its proved reserves being natural gas, in which guru funds together cut a net $47 million in Q4 from their $1.84 billion prior quarter position;
- Forest Oil Corp. (FST), that is engaged in the exploration and production of oil, natural gas and natural gas liquids primarily in North America, with interest in the Texas Panhandle, the Western Canadian Sedimentary Basin in Alberta and British Columbia, the Eagle Ford Shale in South Texas, and the East Texas/North Louisiana area, with 76% of its proved reserves being natural gas, in which guru funds together cut a net $34 million in Q4 from their $102 million prior quarter position;
- Devon Energy Corp. (DVN), engaged in the exploration and production of oil, gas and natural gas liquids in the U.S. and Canada, in which guru funds together cut a net $24 million in Q4 from their $630 million prior quarter position;
- QEP Resources Inc. (QEP), that is an independent natural gas and oil exploration and production company, with operations in the Rocky Mountain and Midcontinent regions, with 82% of its current production being natural gas, in which guru funds together cut a net $17 million in Q4 from their $132 million prior quarter position;
- Quicksilver Resources (KWK), a leader in the development and production of unconventional resources, including coal bed methane, shale gas, and tight sand gas in North America, in which guru funds together cut a net $9 million in Q4 from their $97 million prior quarter position;
- McMoRan Exploration Co. (MMR), engaged in oil and natural gas exploration and production in offshore Gulf of Mexico and U.S. onshore Gulf Coast area, in which guru funds together cut a net $8 million in Q4 from their $58 million prior quarter position; and
- EXCO Resources Inc. (XCO), an independent oil and natural gas company, engaged in the exploration, exploitation, development and production of onshore North American oil and natural gas properties with a focus on shale resource plays, in which guru funds together cut a net $7 million in Q4 from their $278 million prior quarter position.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.