According to its last 13F filling, T Boone Pickens' BP Capital management had Valero Energy Corporation (NYSE:VLO), Pioneer Natural Resources (NYSE:PXD) and Southwestern Energy Company (NYSE:SWN) as its top three holdings. BP Capital manages two funds: Capital Commodity and Capital Equity. Both invest mainly in energy companies in industries such as oil, natural gas, and nuclear power. With this idea in mind ~78% of the fund’s Portfolio is invested in Energy Stocks. Its top three stocks constitute around one third of the total Funds assets:
|Company||% of Hedge funds Portfolio|
|Valero Energy Corporation||11.40%|
|Pioneer Natural Resources Company||10.80%|
|Southwestern Energy Company||10.60%|
I like Valero and Pioneer among the above three and believe that will outperform in future. However I don't think future position of Southwestern Energy is strong. Now let’s discuss these stocks in detail.
In the beginning of December,Valero Energy Corporation (NYSE:VLO) started a new Gulf Coast hydrocracker at its Port Arthur refinery, Texas. This is one of the two new hydrocrackers planned by the company which will mainly produce Diesel. The other one will be operational by the end of 2Q13 at the St. Charles refinery, Louisiana. These projects will increase the distillate yield to ~39% which will be the highest in the industry. It is expected that the company will generate ~$900 million via these projects as profits next year. Currently these hydrocrackers are licensed to produce ~60000 barrels/day, but it is expected that to meet the increasing demand of crude oil, by 2015 company will obtain the permit to produce ~75000 barrels/day. Because of the completion of these projects the company will be able to reduce its Capex by ~$1 billion.
Along with this, early 2Q13 will witness the spin-off initiative for its Corner Store retail marketing segment by converting the same into an independent listed company. Valero will distribute 80% of the new company's stocks to its existing shareholders. There are ~1027 and ~849 Corner Store locations in the US and Canada respectively. This segment of the company maintains an average operating profit of ~$390 million in the last five years. It is expected that the spin-off would create an additional value of ~$1 billion.
Apart from this I expect that the company will generate a free cash flow of ~$4 billion in the next two years which it may use to fund a repurchase program of 20% of its shares.
Pioneer Natural Resources (NYSE:PXD) has recently announced that three new horizontal wells at Wolfcamp and two at Rocker B showed a 24 hour Initial Production (IP) rate of ~900 Barrels of oil equivalent/day (Boe/d). This surpasses the recent B bench well's average IP rate of ~600 Boe/d at Wolfcamp. Along with that, one of the two wells at Rocker B had an IP rate of ~1338 Boe/d as compared to the average of ~1000 Boe/d of wells at Rocker B. Wells were drilled in the southern portion of the company's location in the University Lands in Upton and Reagan counties and indicates good progress in the area where expectations were somewhat low. The only issue with the announcement is the fact that lateral length and oil contents of the new wells were not disclosed but I believe it will be around the average of existing wells in the acreage.