BP plc (ADR) (BP): Why Does Billionaire Value Investor Seth Klarman Own This Supermajor?

Billionaire Seth Klarman, the “Oracle of Boston,” disclosed in his latest 13F filing that he has added to his position in BP plc (ADR) (NYSE:BP). Baupost Group started buying BP plc (ADR) (NYSE:BP) in the second quarter of 2011 with an initial 5.5 million share purchase. The fund now owns more than 17 million shares of BP plc (ADR) (NYSE:BP), making it Klarman’s single-largest holding worth over $725 million (check out Klarman’s cheap stocks).

Who Is Seth Klarman?

Seth Klarman started the Baupost Group in 1982 with an emphasis on value investing. Assets under management have grown from $30 million in 1982 to $29.2 billion at the end of last year. Seth Klarman has achieved cult-like status among value investors for his book, “Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor,” which was published in 1991. He keeps a low profile and has a very large following among value investors. The book currently sells for $2,199 new and $999 used on Amazon.com. Since inception the firm has achieved an average annual return of 19%, one of the best performances in the industry.

A Closer Look At BP

BP plc (ADR) (NYSE:BP) is one of the world’s six Supermajors, or largest publicly owned oil and gas companies. BP plc (ADR) (NYSE:BP) really cemented its status as one of the world’s leading oil and gas companies with its acquisitions of Amoco in 1998 and ARCO in 2000. Today BP plc (ADR) (NYSE:BP) operates in over 80 countries and has over 17 billion barrels of oil equivalent in proven reserves. The company operates over 20,000 retail sites and has interests in 16 refineries. BP also owns Castrol motor oil.

BP’s biggest problem occurred in 2010 with the oil spill in the Gulf of Mexico. BP’s stock price dropped over 50% in the weeks after the spill and cost shareholders $100 billion in market value. The stock reached a low of just under $27 per share before rebounding. This is when many of the smart value investors like Seth Klarman began to buy BP shares.

After this accident BP initiated a corporate divestiture program to raise $38 billion to offset liabilities from the oil spill. By selling these non-core assets, BP shrunk from the world’s second-largest publicly traded oil and gas company to the fourth. Even though the sales shrunk BP, in my opinion the divestitures re-focused BP and made the company into a much leaner and better-run organization.