This Week in Energy: Kinder Morgan, Southwestern, Schlumberger, and More

Crude prices stayed steady this week as traders mostly held the $50 per barrel mark as inventory reports remained bullish (the EIA showed a draw of 5.2 million barrels) and sentiment remains optimistic. It seems that the volatility of the past might not occur in the near future unless a major economic indicator misses, or if OPEC and potentially some select non-OPEC countries fail to come to an agreement on exactly how they will cut production by the promised amount.

In this article, we will take a closer look at five companies, Kinder Morgan Inc (NYSE:KMI), Southwestern Energy Company (NYSE:SWN), Oasis Petroleum Inc. (NYSE:OAS), SM Energy Co (NYSE:SM), and Schlumberger Limited. (NYSE:SLB) and will analyse what the smart money investors tracked by us think about them.

While there are many metrics that investors can assess in the investment process, the hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor to beat the S&P 500 by around 95 basis points per month (see the details here).

Kinder Morgan Inc (NYSE:KMI) rose 3.6% this week largely on the back of Chairman and founder Rich Kinder’s comment that that he favored using excess cash flow for dividend hikes rather than expansionary capex or buybacks. Traders took note because Kinder Morgan’s debt/EBITDA levels are coming down ahead of schedule and the company will eventually have plenty of DCF per share to allocate to the dividend if energy markets continue to improve (as they have been for the last two quarters). If Kinder Morgan hikes its payout consistently, the stock could eventually regain its place as a dividend favorite among investors and traders alike. Warren Buffett‘s Berkshire Hathaway held 26.5 million shares of Kinder Morgan Inc (NYSE:KMI) at the end of June.

Southwestern Energy Company (NYSE:SWN) fell by 10.2%, largely caused by a disappointing third-quarter earnings report released on Thursday after market close. Southwestern earned $0.03 per share, missing the consensus estimate by $0.04 per share, while revenue at $651 million was down by 13.1% year-over-year and $20.89 million ahead of the consensus. Net production came in at 211 Bcfe, down from 249 Bcfe in the third quarter of 2015. Due to the challenging commodity price environment, Southwestern’s average realized gas price including the effect of derivatives fell to $1.73 per Mcf from $2.21 per Mcf in the third quarter of 2015. Of the 749 funds we track, 48 funds owned $1.35 billion worth of Southwestern Energy Company (NYSE:SWN)’s stock, which accounted for 27.40% of the float on June 30, versus 28 funds and $656.97 million, respectively, on March 31.

On the next page, we will examine the events that put Oasis Petroleum, SM Energy Co, and Schlumberger Limited in the spotlight.

Although the fact that it’s a high beta stock makes Oasis’ gain of 3% for the week less impressive, Oasis Petroleum Inc. (NYSE:OAS) nevertheless did well given the circumstances. Apparently, the company’s issuance of 48 million shares of common stock (plus up to 7.2 million shares more for underwriters) at $10.80 a piece wasn’t enough to satiate the bulls, as Oasis shares closed at $11.42 per share on Friday. With the price action, it seems that some in the market believe the benefits of Oasis buying SM Energy’s Bakken assets outweigh the short term negatives of an offering. The smart money was also somewhat bullish on Oasis. According to our data, the number of elite funds with holdings in Oasis Petroleum Inc. (NYSE:OAS) rose by four quarter-over-quarter to 33 at the end of June.

In contrast to its previous major Texas buy, SM Energy Co (NYSE:SM) shares didn’t rally much this time around (up by 1.2% for the week) after the company announced that it has agreed to buy 35,700 net acres in West Texas to expand its Midland Basin footprint to around 82,450 net acres. SM will pay $1.1 billion in cash and will offer 13.4 million shares of common stock to the seller, QStar LLC. To cover some costs, SM announced that it has entered into a definitive agreement to sell its Williston Basin assets outside of Divide County for $785 million to Oasis Petroleum. Shares of SM Energy have upside if crude prices continue rallying. A total of 20 funds were long SM Energy Co (NYSE:SM) at the end of June, up by one from the previous quarter.

Last but not least, Schlumberger Limited. (NYSE:SLB) shares inched down by 1% for the week as oil prices mostly stayed in a tight range. Although the company sees some early signs of recovery in many parts of the market, those green shoots didn’t do much for Schlumberger’s third-quarter earnings. During the period, the service company earned $0.25 per share on revenue of $7.02 billion. Those numbers are $0.03 per share better for the bottom-line and $60 million worse for the top-line versus Wall Street’s average estimate. The number of elite funds with holdings in Schlumberger Limited. (NYSE:SLB) fell by one quarter-over-quarter to 55 at the end of June.

Disclosure: none