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Top Energy Stocks John Paulson Owns: RIG, APC, LNG

April 25, 2011 | About:
Holly LaFon

Holly LaFon

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John Paulson is the founder and president of $36 billion hedge fund Paulson & Co. In 2008, Paulson beat the S&P by 61.1% during the credit crisis; in 2010, his funds gained $8.4 billion gross. In recent quarters, he significantly increased his holdings in energy companies, particularly those involved to some degree in the Gulf of Mexico oil disaster. Currently, he owns stock in three energy companies: Transocean Ltd. (RIG), Anadarko Petroleum Corp. (APC) and Cheniere Energy Inc. (LNG).

Transocean LTD. (RIG)

Transocean LTD., formerly Transocean Inc., is an international provider of offshore contract drilling services for oil and gas wells. Transocean Ltd. has a market cap of $24.06 billion; its shares were traded at around $75.41 with a P/E ratio of 13.11 and P/S ratio of 2.51. Transocean Ltd. had an annual average earnings growth of 12.7% over the past 10 years. GuruFocus rated Transocean Ltd. the business predictability rank of 2.5-star.

Transocean stock has not quite recovered from the market crash of 2008, when it plunged from a $160 range to the low $40 range. As of April 25, 2011, it is selling at $73.40, with a 52-week high of $90.53. Year to date, it is up 5.6%.

Paulson initiated his stake in the company in the fourth quarter of 2010. He bought 7.2 million shares at an average price of $67.17. The stock has gained 12.3% since then.

Transocean owned the right that exploded in the Gulf of Mexico oil spill in April, 2010. From 2006-2009, the company earned net income of $1 billion to over $5 billion. In 2010, the year of the oil spill, it took a dramatic hit, earning $961 million in net income. In the fourth quarter of 2010, it lost $799 million in net income. Transocean had a gross profit margin of 46.5% in 2010.

In April, Transocean’s ultra-deepwater drillship set the record for deepest water drill in history: 10,194 feet off the coast of India. The company will also pay the first installment of a proposed dividend of approximately $1 billion in June.

Anadarko Petroleum Corp. (APC)

Anadarko Petroleum Corporation is one of the world's largest independent oil and gas exploration and production companies. Anadarko Petroleum Corp. has a market cap of $39.78 billion; its shares were traded at around $79.07 with a P/E ratio of 43.93 and P/S ratio of 3.62. The dividend yield of Anadarko Petroleum Corp. stocks is 0.46%. Anadarko Petroleum Corp. had an annual average earnings growth of 8.5% over the past 10 years.

Anadarko Petroleum Corp. stock has increased 39.53% in the last five years, and 3.73% year to date. John Paulson first purchased APC stock in the third quarter of 2010, buying 13,400,000 shares at an average price of $50.39 per share. In the fourth quarter of 2010, he raised his holdings 7,877,761 shares at an average price of $64.2 per share. The stock has gained 23.2% since then. It is the fifth largest holding in his portfolio.

From 2001-2008, the year of the BP oil spill, Anandarko’s earnings per year were in the billions of dollars. The company lost $40 million and $26 million in the second and third respective quarters of 2010, for a 2010 net income of $761 million, up from a loss of $103 million the year prior.

In guru Daniel Loeb’s third quarter 2010 letter to investors, he wrote that Anadarko was a minority nonoperating partner in the Macondo Well and that the well’s explosion was responsible for Anadarko’s share price decline from ~$73 to a low of ~$35. He also acquired millions of shares in the third quarter of 2010, commenting: “We initiated a position in the debt securities in June and July of 2010 at yields to maturity of 8 to 9.5%, expecting all-in returns via interest and capital appreciation of 20 to 30% based on the view that the market overreacted to the impact of the spill and potential liabilities. We believed that investors were ignoring the long duration of the cash outflows related to spill liabilities (NPV effect) as well as the tax deductibility of those expenses. Our analysis suggested that the “worst-case” liability figures for BP included punitive damages and criminal fines that Anadarko would not be required to share in any scenario, and Anadarko will likely not have to pay its 25% share of the liabilities due to a finding of gross negligence on the part of BP or, more plausibly, a settlement with BP (a scenario with potent political tailwinds). Finally, we knew the Company’s intent is to be an investment grade company, and so regardless of the ultimate liability, the Company would take actions (equity raises, asset sales, Capex reductions) to re-attain investment grade status.”

However, Moody’s analysts recently reported, "A quick look at the five Macondo companies in the year since the accident reveals that legal matters remain far from certain for BP, Anadarko and Transocean."

Cheniere Energy Inc. (LNG)

Cheniere Energy is engaged in exploration for oil and gas reserves. Cheniere Energy Inc. has a market cap of $614.62 million; its shares were traded at around $8.81 with and P/S ratio of 2.11.

Cheniere Energy’s stock spent 2009 and most of 2010 hovering around $3 per share. However, the stock has gained 77.41% in the last year. Its largest trend upward began in November 2010 after the company announced it might get a deal to transport gas to China.

Paulson first acquired shares in the second quarter of 2008, buying 4,700,000 at an average price of $8.58. In the fourth quarter of 2008, when the price dropped to an average of $2.6, he purchased 2,824,085. In the first quarter of 2009, he sold 62,894 at $4.02 per share, then reduced his position by 4,637,106 in the fourth quarter of 2010 at $4.36 per share. He owns 7.3, and the price as increased 102.1% since then.

Cheniere Energy is the type of distressed company that has tended to interest John Paulson. Is has not had positive net earnings in 10 years. It had only one positive quarter in 2010, earning $85.67 milliom in the quarter ended June 31, 2010. It also has total liabilities of $3.06 billion.

Also check out the Undervalued Stocks, Top Growth Companies, and High Yield Stocks of John Paulson.

Rating: 3.4/5 (5 votes)

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