After a near flat performance last year, the energy sector SPDR (XLE) is down 6% YTD. Although oil prices are still at relatively high levels in the $85-$90 per barrel range, the threat of the EU crisis worsening and spilling over into China and the rest of the world are helping keep a lid on prices. However, we believe that the long-term outlook is promising in the face of a growing global economy, led by the BRIC countries, constrained supply, and the threat of an Iran-led crisis in the oil-rich Middle East. In this article, via an analysis based on the latest available Q1 institutional 13-F filings, we identify the mid-cap oil & gas exploration & production company stocks that are being accumulated and those being distributed by the world's largest fund managers.
These mega fund managers, such as Fidelity Investments, Goldman Sachs, BlackRock Inc., Vanguard Group, and 22 others, manage between $100 billion and over $1 trillion each, and together control about 40% of the assets invested in the U.S. equity markets. Together, these mega fund managers are bullish on the oil & gas exploration & production group, adding a net $2.78 billion in Q1 to their $159.56 billion prior quarter position in the group. However, overall they are still under-weight the group by a factor of 0.55; that is, taken together, the 25 mega funds have invested 2.0% of their assets in the group, slightly more than half of the 3.7% weighting of the oil & gas exploration & production group in the overall market (for more general information on these mega funds, please look at the end of the article).
The investing activities of these mega fund managers in small-cap oil & gas exploration & production companies were covered in a prior article. The following are the mid-cap oil & gas exploration & production companies that these mega fund managers are most bullish about (see Table):
WPX Energy (WPX): WPX, previously a wholly owned subsidiary of Williams Co. (WMB), before it was spun-off in late 2011, is an independent energy exploration and production company, engaged in the production of natural gas, natural gas liquids (NGLS) and oil from non-conventional resources such as tight-sands and shale formations, as well as coal-bed methane reserves. Mega funds together added a net 83.31 million shares in Q1 to their 6.03 million share prior quarter position in the company, and taken together mega funds held $1.31 billion or 45.0% of the outstanding shares.
The top buyer was Franklin Templeton Investments, with over $152 billion in 13-F assets, that purchased 12.05 million shares. Other large mega fund purchasers included the world's largest and most prominent asset manager, Blackrock Inc. (11.30 million shares), with over $3.5 trillion in assets under management, Vanguard Group (10.83 million shares), with $1.7 trillion in assets under management, Wellington Management (10.33 million shares), one of the largest private independent investment management companies in the world, with $634 billion in assets under management, and T Rowe Price Associates (9.87 million shares), with $520 billion in assets under management. Overall, institutional investors loaded up on WPX in Q1, adding 147.9 million shares to their 13.5 million share prior quarter position.
In its latest Q1 (March), WPX missed analyst earnings estimates (5c loss v/s 2c loss), while revenues were down 5% year-over-year. The reason has been the company's heavy reliance on natural gas, that has seen prices slump to historic lows. However, the company has been shifting its focus to increasing oil and NGL production, that should help stabilize cash flow going forward. While the Q1 headline numbers were disappointing, the company also lowered natural gas production guidance, while at the same time indicating that Q1 oil and NGL production was 68% and 12% higher year-over-year. This along with recent asset sales aimed at strengthening its balance sheet make it a promising opportunity at current prices.
Other mid-cap oil & gas exploration & production companies that mega fund managers are bullish about include:
- Plains Exploration & Production Co. (PXP), an independent oil & gas company, with properties in CA, offshore CA, the Gulf Coast, the Gulf of Mexico, and the Rocky Mountains, in which mega funds together added a net 11.45 million shares to their 37.18 million share prior quarter position in the company;
- Cheniere Energy (LNG), an operator of LNG receiving terminals and natural gas pipelines in the Gulf Coast of the U.S., in which mega funds together added a net 24.15 million shares to their 21.53 million share prior quarter position in the company;
- SM Energy Co. (SM), engaged in the exploration, production and acquisition of crude oil and natural gas in North America, in which mega funds together added a net 2.21 million shares to their 26.28 million share prior quarter position in the company;
- 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 mega funds together added a net 1.97 million shares to their 77.35 million share prior quarter position in the company;
- EV Energy Partners LP (EVEP), that is a MLP engaged in the acquisition, development and production of oil & natural gas properties in the continental U.S., in which mega funds together added a net 1.04 million shares to their 7.59 million share prior quarter position in the company; and
- Denver-based Kodiak Oil & Gas (KOG), an independent energy exploration and development company focused on exploring, developing and producing oil and natural gas in the Williston and Greater Green River Basins in the U.S. Rocky Mountains, in which mega funds together added a net 6.23 million shares to their 58.64 million share prior quarter position in the company.
The following are mid-cap oil & gas exploration & production companies that mega funds are bearish about (see Table):
- Newfield Exploration (NFX), that is an independent oil and gas company engaged in the exploration and development of crude oil and natural gas properties in the U.S., Malaysia and China, in which mega funds together cut a net 4.78 million shares from their 72.35 million share prior quarter position in the company;
- Sandridge Energy Inc. (SD), an OK-based independent oil and natural gas company, in which mega funds together cut a net 10.22 million shares from their 89.72 million share prior quarter position in the company;
- Whiting Petroleum Corp. (WLL), that 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., in which mega funds together cut a net 1.46 million shares from their 51.47 million share prior quarter position in the company;
- Pengrowth Energy Corp. (PGH), a Canadian energy trust with crude oil and natural gas properties in Western Canadian Sedimentary Basin, and offshore along the east coast of Canada, in which mega funds together cut a net 9.59 million shares from their 44.39 million share prior quarter position in the company; and
- Ultra Petroleum Corp. (UPL), that 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, with current production comprising 97% gas and 3% crude oil or liquid hydrocarbons, and about 96% of its proved reserves is natural gas, in which mega funds together cut a net 2.59 million shares from their 58.58 million share prior quarter position in the company.
Furthermore, the following are additional small-cap oil & gas exploration & production companies that are among the top holdings of mega funds in the group (see Table):
- Cimerex Energy Co. (XEC), an independent oil & gas exploration and production company operating in the Mid-Continent and Permian Basin areas of the U.S., in which mega funds together hold 40.79 million or 47.6% of the outstanding shares;
- 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 mega funds together hold 30.89 million or 19.1% of the outstanding shares; and
- Enerplus Corp. (ERF), that is an independent oil & gas producer, with property interests located, in which mega funds together hold 16.21 million or 8.2% of the outstanding shares.
General Methodology and Background Information: The latest available institutional 13-F filings of the largest 25 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.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
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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