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Top Holdings from T Boone Pickens

February 13, 2012 | About:
Mara Kohn

Mara Kohn

4 followers
“Entrepreneurs search for — and create — value.” This is Thomas Boone Pickens, Jr, an American businessman. He is Chairman of the private equity firm BP Capital Management. His company’s main area of business is investments in energy futures and stocks of public companies in several energy sectors and industries.

He became an independent oilman after creating the largest oil company in the U. S. and after generating millions of dollars by mainly focusing on acquisitions rather than just exploitation.

When Pickens graduated from the Oklahoma State University he started to work for Phillips Petroleum and started what would then turn out to be the Mesa Petroleum with $2,500. During that time his face regularly appeared on every significant business publication in America. In the spotlight he talked about the rights of the true owners of American businesses, shareholders. He also demanded that American investors have the same access to Japan and other foreign markets as foreign investors have in the U.S.

With his company he has made millions of dollars for himself as well as for others. . "I like making money. I like giving it away," he has often said. His philanthropy includes medical, research, athletics and academic projects.

With an estimated current net worth of around $2.5 billion, he is ranked by Forbes as the 131-richest person in America.

Here are his top holdings:

Chesapeake Energy Corp (CHK): Chesapeake Energy’s main activities are the exploration, production and marketing of natural gas in the U.S. It concentrates on unconventional plays and leaseholds in several liquids-rich basins. Its net acres amount to 14.9 million across properties. 90% of its total reserves come from natural gas.

What is fostering CHK’s reserve growth are its large acreage positions in almost all U.S. resource plays and also the firm’s joint ventures and partnerships that reduce costs considerably.

When investors are searching for opportunities, CHK seems to be a good investment candidate. Here are some ingredients of its advantageous profile: After two major collapses, 1990s and 2008, the firm managed very well to survive by creating interesting fundraising plans. In addition, the company has changed its portfolio by transforming it in a more liquids-rich one and has fostered the monetization of assets. All this contributes to improve its economic profile and balance sheet. Chesapeake has launched an initiative to deploy more funds toward liquids. In 2010, 30% of its drilling and completion capital expenditures were allocated to liquids-rich plays. With the increase in oil prices, the company expects to deploy 50% of its capex to drill liquids-rich plays in 2011. For next year it is expecting to apportion 75%.

Most importantly, the company is expecting to reduce its long-term debt by 25% while increasing its natural gas and oil production by that same percentage. The Niobrara Shale cooperation deal and the sale of its Fayetteville Shale properties mark significant progress in this regard.

The company projects full-year production growth in the range of 6% to 11% (17% to 22% excluding asset sale) for 2011. For 2012, Chesapeake expects volume growth in the range of 13 to 20%. Excluding asset sales, it is estimated in the 17-24% range. Liquids production is expected to range between 32,000 and 36,000 thousand barrels (MBbls) for 2011 and from 51,000 to 57,000 MBbls for 2012. Natural gas output is expected to stay between 900 and 930 billion cubic feet for 2011 and between 960 and 1,000 bcf for 2012.

Last but not least, the monetization of assets has improved its balance sheet. Debt balance stood at $9,915 million at the end of the first quarter, representing a debt-to-capitalization ratio of 39.8%

BP PLC (BP): BP is an integrated oil and gas firm with operations across six continents. It has upstream and downstream operations. The former are expected to produce 3.4 million barrels of oil equivalent per day during 2011 while the latter 14 refineries with 2.4 million barrels per day of capacity, petrochemical plants, and retail operations.

Oil is one of BP’s main products. It constitutes 63% of the firm’s production which positions BP as one of the largest oil company in the world. BP can face any issue and at the same time maintain its investments and payment of dividends since its cash flow profile remains strong.

BP has launched a $30 billion asset divestiture program to overcome liquidity problems. It is believed that the company will have sufficient funds to pay all its spill-related liabilities. Furthermore, by the first quarter of 2012, the company expects to complete its assets sales and it is planning an additional $15 billion in divestments for 2014. Most importantly, the company is offloading its non-core upstream properties to create a stronger portfolio. BP is also divesting the Carson, California and Texas City, Texas refineries, which hold half of its U.S. capacity.

BP is carefully focusing on upstream activities: higher exploration activity with additional precautionary actions, refining and marketing repositioning. This is believed to be a wise strategy so as to create value for shareholders and increase its active portfolio.



In terms of future expectations, the company expects to increase production. The Reliance deal will surely improve volume expansion. In 2011, BP had an aggressive turnaround schedule. Most of the turnarounds were underway or completed.



National Oilwell Varco, Inc. (NOV): National Oilwell Varco’s main area of business is the creation of systems and products used in oil exploration and drilling. It is the biggest maker of oilfield equipment in the US. Some of its products and services are well servicing rigs, tubular inspection and internal tubular coatings, drill string equipment, extensive lifting and handling equipment, and a broad offering of downhole drilling motors, bits and tools, among others. It is considered the fourth largest drill bit supplier in the globe.

Recently, NOV reported results that were better than analysts expected: Earnings per share (excluding transaction charges) came in at $1.26, comfortably above estimates of $1.17 and the year-ago adjusted profit of 97 cents. Quarterly revenue rose 24.2% year-over-year – from $3,011.0 million to $3,740.0 million – and was 2.4% above our projection.

In relation to competitors, NOV has the lowest P/E ratio trading at 15.42 times its earnings. BHI is a little higher at 17.33 P/E ratio, while CAM is a little above that with a P/E ratio of 19.92. FTI has the highest P/E ratio at 26.58. NOV also has the lowest EV/FCF of the group. FTI and BHI are much higher, coming in at 52.53 and 69.84 respectively. CAM was the highest at 114.82. As regards earnings, NOV’s free cash flow yield has ranged from 3.42% to 18.78%, averaging 8.01% in the last five years. BHI current free cash flow yield is just -3.76% as of November 1, it lowest in five years. BHI averaged a 0.01% loss in FCF yield after reaching a high of 3.15% in December 2008. CAM´s free cash yield went from a five-year low of -2.70% in September 2011 to a high of 15.98% in December 2008. CAM had an average 3.89% FCF yield over the last five years. FTI ranged from -0.58% to 7.29% for an average free cash flow yield of 3.34%.

As regards earnings, NOV´s earning grew 27.9% surpassing the industry´s 0.8% growth. NOV is expected to continue in this trend.

Financially speaking, NOV is in a solid position. It is currently trading at $69.07 and is expected to rise to $89.75. It has a low P/E ratio and it is fully priced.

Devon Energy Corp (DVN): Devon Energy’s main field of operation includes conventional and unconventional oil and natural gas properties and an important network of midstream assets. It is considered one of the largest independent E&P companies in North America.

Natural gas, reserves and midstream and marketing operations constitute DVN’s main sources of production. The operations accounted for 68%, 60% and 19% of revenue in 2010, respectively. At year-end 2010, Devon's proven reserves totaled 17.2 Tcfe, with net production of 3.7 Bcfe/d. As of September 30, 2011, the company had $6.8 billion of cash and short-term investments.

The firm’s portfolio is diversified into a mix of oil and gas assets, unconventional resources and near-term and longer-dated projects which makes it very attractive for investors and, at the same time, supports considerable future growth.

Devon has been able to retain financial flexibility and liquidity by prudently managing its balance sheet. This, together with good performance and the decision of offloading international assets have helped the firm focus on its highest-return opportunities minimizing risks and promising high revenues.

In general, Devon has shown capital discipline. It has allocated resources rationally to improve growth and maintain cash flows. As the market for natural gas has become challenging, the company is focused on oil and liquids-rich opportunities. That is why most of its 2011 drilling program is focused on this type of properties.

Financially speaking, the company had, at the end of 2011, $6.8 billion of cash and short-term investments and its net debt adjusted to capitalization ratio decreased 10%. Devon´s operating cash flow before balance sheet changes in the second quarter increased 6% year over year to reach $1.9 billion.

EOG Resources (EOG): EOR explores, develops, manufactures and trades natural gas and crude oil mainly in important producing basins in the United States. It also operates in Canada and the Republic of Trinidad and Tobago and in other areas at a lower scale. The firm’s main operations correspond to exploration and production of natural gas and crude oil.

Several advantages make EOG an interesting investment target: Its portfolio comprises sizable positions in several plays allowing production and reserves. They also include "throttles” used to speed up production of oil and gas. The company also counts on unconventional drilling plays know-how, which would be translated into more profitable margins.

As of December 31, 2010, its total estimated net proved reserves were 1,950 million barrels of oil equivalent (MMBoe), of which 386 million barrels (MMBbl) were crude oil and condensate reserves, and 152 MMBbl were natural gas liquids reserves; and 8,470 billion cubic feet (Bcf) or 1,412 MMBoe were natural gas reserves. The company held approximately 520,000 net acres in the mature oil window of the Eagle Ford Shale Play near San Antonio, Texas.


Rating: 4.4/5 (9 votes)

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