As crude oil prices continue their descent to almost their lowest point since 2009, many value investors have contemplated whether oil stocks offer a compelling value.
In November, North Sea Brent Crude averaged $44 per barrel, falling $4 per barrel from October, due to an increase of 1.3 million barrels per day in inventory. Protracted low oil prices have resulted from global petroleum production outpacing consumption, creating surplus inventory. That inventory build may finally be beginning to slow, according to the U.S. Energy Information Administration’s December 2015 Short Term Energy Outlook. The EIA estimates that global oil inventory builds averaged 1.8 million barrels per day in the third quarter, down from 2 million b/d in the second quarter, which saw the highest level of surplus inventory since 2008.
For fourth quarter 2015, the EIA expects builds to continue to slow to 1.4 million, and then to slow further to 0.6 million b/d in 2016.
Much of the excess was caused by increases in liquids production in countries outside of the Organization of the Petroleum Exporting Countries, which grew 2.5 million b/d in 2014, led by production growth in the U.S. The EIA also expects an annual slowdown for non-OPEC production for the first time since 2008 ahead, forecasting 1.2 million b/d growth for 2015, followed by a decline of 0.4 million b/d in 2016.
“Non-OPEC production growth in 2015 is largely attributable to investments committed to projects before the oil price decline that began in mid-2014. The declines in 2016 are mostly because of declines in U.S. onshore and North Sea production,” the EIA said.
The EIA also forecast an average price of $53/b for Brent crude in 2015 and $56/b in 2016, up from $37.95/b on Tuesday, but not with strong confidence.
“EIA’s crude oil price forecast remains subject to significant uncertainties as the oil market moves toward balance. During this period of price discovery, oil prices could continue to experience periods of heightened volatility,” the administration said. “The oil market faces many uncertainties heading into 2016, including the pace and volume at which Iranian oil reenters the market, the strength of oil consumption growth, and the responsiveness of non-OPEC production to low oil prices.”
Gurus
Gurus have differed in their takes on oil stocks. Some, such as Bill Nygren (Trades, Portfolio), Martin Whitman (Trades, Portfolio) and David Einhorn (Trades, Portfolio) have trimmed their exposure to single-digit percentages of their respective portfolios.
Others, such as David Tepper (Trades, Portfolio), cut their exposure to energy completely in the fourth quarter of 2014, from 6.5% to zero. He hasn’t picked up any oil and gas shares since he Tepper exited his position in three stocks: Weatherford International PLC (WFT), Schlumberger Ltd. (SLB, Financial) and Mohawk Industries Inc. (MHK). The move was mostly smart: Year to date, Weatherford International shares declined 20.3% and Schlumberger by 15.9%, as Mohawk gained 24.7%.
Few have kept as much energy exposure in their portfolio as deep-value hunter Seth Klarman (Trades, Portfolio). Since the first quarter, he has planted more than 39% of his long equity positions in oil and gas stocks, the largest sector represented. As his largest positions held he has Cheniere Energy Inc. (LNG), Pioneer Natural Resources Co. (PXD) and Antero Resources Corp. (AR).
T Boone Pickens (Trades, Portfolio) went the opposite extreme in the quarter, growing his energy positions to 100% of his portfolio for the first time in five years of tracking, and up from 86% at the start of the year.
Stocks
The stocks of the oil industry that attracted the most guru buying in the third quarter, according to the S&P 500 Screener, were: Exxon Mobil Corp. (XOM, Financial), Schlumberger Ltd. (SLB, Financial), Apache Corp. (APA, Financial), National Oilwell Varco (NOV, Financial) and Chevron Corp. (CVX, Financial).
The most bought S&P stock of gurus was Exxon Mobil in the third quarter. Seventeen gurus bought more shares or added the stock to their portfolio. The largest position belonged to Richard Pzena (Trades, Portfolio), who held 0.15% of its shares outstanding, and Mark Hillman (Trades, Portfolio) has the largest portfolio position, representing 3.6% of his total portfolio.
Exxon Mobil Corp., a New Jersey corporation was incorporated in 1882. Exxon Mobil Corp. has a market cap of $328.83 billion; its shares were traded at around $78.99 with a P/E ratio of 16.69 and P/S ratio of 1.12. The dividend yield of Exxon Mobil Corp. stocks is 3.65%. Exxon Mobil Corp. had an annual average earnings growth of 6.2% over the past 10 years. GuruFocus rated Exxon Mobil Corporation the business predictability rank of 4-star.
Schlumberger Ltd. (SLB, Financial)
Following behind Exxon Mobil Corp. was Schlumberger Ltd., which had 14 buyers in the third quarter. The largest position belonged to Dodge & Cox, which held 4.92% of outstanding shares, and the largest portfolio position belonged to David Rolfe (Trades, Portfolio), representing 5.29% of his portfolio.
Schlumberger Ltd. was founded in 1926. The company is a supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. Schlumberger Ltd. has a market cap of $89.64 billion; its shares were traded at around $71.08 with a P/E ratio of 26.79 and P/S ratio of 2.25. The dividend yield of Schlumberger Ltd. stocks is 2.83%. Schlumberger Ltd. had an annual average earnings growth of 11.2% over the past 10 years. GuruFocus rated Schlumberger Ltd. the business predictability rank of 4-star.
Thirteen gurus purchased shares of Apache Corp. in the third quarter. The largest holding belonged to Dodge & Cox, who held 6.87% of shares outstanding, and the largest portfolio position came from Martin Whitman (Trades, Portfolio), representing 2.88% of his portfolio.
Apache Corp. is a Delaware corporation formed in 1954, is an independent energy company that explores for, develops, and produces natural gas, crude oil and natural gas liquids. Apache Corp. has a market cap of $16.9 billion; its shares were traded at around $44.71 with and P/S ratio of 1.90. The dividend yield of Apache Corp. stocks is 2.24%. Apache Corp. had an annual average earnings growth of 5.9% over the past 10 years. GuruFocus rated Apache Corp. the business predictability rank of 2.5-star.
National Oilwell Varco (NOV, Financial)
Of the 13 gurus who bet on National Oilwell Varco in the third quarter, Dodge & Cox held the largest position with 5.77% of shares outstanding. The largest portfolio position belonged to David Rolfe (Trades, Portfolio), representing 3.9% of his portfolio.
National Oilwell Varco Inc. was incorporated in Delaware on July 24, 1996. National Oilwell Varco Inc. has a market cap of $12.9 billion; its shares were traded at around $34.32 with a P/E ratio of 10.42 and P/S ratio of 0.78. The dividend yield of National Oilwell Varco Inc. stocks is 5.38%. National Oilwell Varco Inc. had an annual average earnings growth of 20.30% over the past 10 years. GuruFocus rated National Oilwell Varco Inc. the business predictability rank of 3-star.
Chevron Corp. (CVX, Financial)
Twelve gurus bought shares of Chevron Corp. in the third quarter. T. Rowe Price Equity Income Fund owned the biggest position, with 0.25% of its outstanding shares. Sarah Ketterer has the largest portfolio position, representing 3.19% of her portfolio.Ă‚
Chevron Corp was incorporated in Delaware in 1926 as Standard Oil Company of California, and it adopted the name Chevron Corp. in 1984 and ChevronTexaco Corp. in 2001. Chevron Corp. has a market cap of $175.86 billion; its shares were traded at around $93.44 with a P/E ratio of 20.36 and P/S ratio of 1.14. The dividend yield of Chevron Corp. stocks is 4.59%. Chevron Corp. had an annual average earnings growth of 7.8% over the past 10 years. GuruFocus rated Chevron Corp.Ă‚ the business predictability rank of 4-star.Ă‚
For more oil sector stocks or stocks from any sector that were purchased by the most gurus in the past quarter, visit the S&P 500 Screener. Not a Premium Member of GuruFocus? Try it free for 7 days.
