Let’s start with energy, as we know it is top of mind for many of our shareholders. A crucial factor we want to express is that the energy companies in the portfolio do not have any near-term refinancing risk, unlike many other energy companies that have large sums of debt coming due this year or next. A very recent example of how a strong balance sheet can benefit shareholders is Noble Energy (NYSE:NBL). NBL refinanced some of its intermediate debt maturities with shorter-term debt at substantially lower interest rates in early January 2016. Today, most energy companies seeking to refinance their debt would experience much higher interest payments, if they could even access the credit market. NBL was not only able to access the credit market but also lower its annual interest expense by $50 million for the same amount of debt outstanding.
When we assess the energy stock’s impact on the FPA Capital Fund (Trades, Portfolio), it is interesting to observe that the fund realized a net gain of over $200 million from 2008 through the end of 2015. The Fund realized gains every year from 2008-2014, with among the largest gains realized in 2014, when oil prices peaked. With hindsight, we blew it. We should have sold every one of our energy stocks by the end of 2014 and added the proceeds to our cash position.
From FPA Capital Fund (Trades, Portfolio)'s fourth quarter 2015 commentary.
