T. Boone Pickens’ Favorite Energy Stocks

BP CAPITALThough Thomas Boone Pickens, Jr. who goes by T. Boone, is known as a hard-charging Texan, he was actually born in Oklahoma, where his father leased rights to oil and minerals his mother ran the local Office of Price Administration, during World War II. Pickens went on to attend Texas A&M on a basketball scholarship and after losing the scholarship, transferred to Oklahoma A&M, from where in 1951, he graduated with a degree in geology. After graduation, Pickens worked for Phillips Petroleum for a few years before founding what would become Mesa Petroleum. Mesa eventually grew into one of the largest independent oil companies. Pickens led Mesa’s first major acquisition, the Hugoton Production Company followed by acquiring other oil and gas companies. It was his time at Mesa in the 1980s that garnered him a reputation as a corporate raider though a number of his deals fell through. Some of Pickens’ high profile deals included attempted buyouts of Gulf Oil, Phillips Petroleum, and Unocal. After his big deal for Gulf Oil, he found himself on the cover of Time Magazine in 1985. Pickens now serves as chairman of BP Capital Management and has an estimated current net worth of $1.4 billion.

In 2008, Pickens announced his own energy policy proposal: the Pickens Plan. Its goal is to reduce foreign energy dependency by bringing online alternatives to oil such as wind and solar. Regarding harnessing wind power, the Pickens Plan calls for the US to utilize what he terms the “wind corridor,” referring to the section of the midwest from north Texas through the Great Plains to the Canadian border, which he posited would generate new jobs and provide economic stimulus to the area. However, increasingly Pickens has been focusing less on the renewable energy front and more on the shift to natural gas to power the commercial transportation sector.

Top 10 Holdings:

Company Ticker Value ($000s) Activity
B P PLC BP 20,345 12%
ENCANA CORP ECA 18,392 New
NATIONAL OILWELL VARCO INC NOV 14,262 0%
DEVON ENERGY CORP NEW DVN 13,513 36%
TRANSOCEAN LTD RIG 13,068 47%
CHESAPEAKE ENERGY CORP CHK 11,563 -12%
WEATHERFORD INTL LTD NEW WFT 10,489 35%
SANDRIDGE ENERGY INC SD 9,250 0%
DAWSON GEOPHYSICAL CO DWSN 8,426 0%
SUNCOR ENERGY INC NEW SU 7,063 0%

Pickens stuck to his strong suit in energy with new picks Encana (ECA), Calpine (CPN), Exelon (EXC), Valero (VLO), and NRG Energy (NRG). He also added to BP Plc (NYSE:BP), Devon Energy (NYSE:DVN), RIG, and WFT. BP is not as attractive to us, having traded up to ~5.8x forward earnings, inline with peers Total SA (TOT) at ~5.7x and Marathon Oil (NYSE:MRO) at ~5.9x. Exxon (NYSE:XOM) and Chevron (NYSE:CVX) trade at slightly higher multiples, ~8.8x and ~7.2x, respectively, which we view as warranted given balance sheet strength, and diversity of revenue streams. BP is the most popular oil company among hedge funds, followed by Exxon Mobil. Value investor Seth Klarman had a $400+ million position in the stock at the end of the first quarter. Billionaires Ken Fisher and Ken Griffin are among the fund managers with large XOM positions. They both boosted their stakes in XOM during the first quarter (see Ken Fisher’s top stock picks).

Over the past couple of months there has been quite a sell-off in energy equities, and as we reevaluate the space, we are interested in companies that are scaling up and investing in shale. It’s a capital intensive business, but we believe this is becoming a major theme for oil producers. Based on that theory, we like Noble Energy (NBL), Occidental Petroleum (OXY), Devon Energy, and Pickens’ pick MRO. MRO may seem to be late to shale game, but on an EV/EBITDA basis, is cheaper than Hess (HES) and Murphy Oil (MUR). MRO has also been better about returning capital to shareholders. Kevin Bacon Moore is the top holder of MRO among the nearly 400 hedge fund managers we are tracking.

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