Seth Klarman (Trades, Portfolio), a conservative investor who runs Boston-based Baupost Management, again added to his growing position PBF Energy (PBF, Financial), the fourth-largest independent oil refiner in the U.S. – two spaces below Warren Buffett (Trades, Portfolio)’s refiner Phillips 66 (PSX, Financial)
Klarman added 5,083,000 shares to the position on Aug. 31 that increased it by roughly 48%. With a total position of 15,724,175 shares, he controls 16.1% of the company. He started the position in the third quarter 2013 and continued buying over the subsequent two years, but sold almost 400,000 shares in the first quarter this year when the price reached its highest quarterly average of $32.
Famous for his focus on a margin of safety between the price he pays and the value of a company, Klarman made his August purchase of PBF as the price fell roughly 41%. The price has risen 6.1% since his Sept. 9 purchasing disclosure, including a 6.9% gain on Monday.
According to a Barclays presentation in September, PBF considers itself undervalued. Since its 2012 IPO, it has increased its number of refineries from three to five and refining capacity from 540,000 to 884,000 barrels per day, while its price sank 15% over the past five years.
It also focuses on maintaining a conservative balance sheet with low debt and reinvesting in the company to increase cash flow. In the second quarter, PBF recorded $1.4 billion in balance sheet capital, its highest ever. Its debt stood at $2.2 billion at quarter-end, also a record high.
In addition to refining, PBF has a second growth platform through a 49.5% interest in PBF Logistics (PBFX, Financial) that provides a low-cost source of capital and logistics assets, using the savings to pay down debt and improve liquidity.
The company refines and supplies unbranded transportation fuels, petrochemicals, lubricants, heating oil and other petroleum products. It owns five domestic oil refiners located in California, Delaware, Louisiana, New Jersey and Ohio, with a combined processing capacity of around 900,000 barrels per day.
In the recent two years, Warren Buffett (Trades, Portfolio), an influence on Klarman, has been aggressively building a position in another oil refiner, Phillips 66 (PSX, Financial). By contrast, Phillips 66 has 14 facilities that produce 2 million barrels per day. Like PBF, it owns a stake in a growth-oriented master limited partnership, Phillips 66 Partners (PSXP, Financial), which owns pipelines and terminals and has increased its ownership in logistics with the purchase of South Louisiana NGL Logistics Assets on Aug. 25.
According to statements by Buffett, he looks for wonderful companies at merely fair prices to suit his giant conglomerate Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), unlike Klarman who may look for significantly low-priced windows. Buffett tripled his stake in Phillips 66 when its price averaged $79 in the second quarter 2015, and has been purchasing its shares this year at prices in the upper $70s.
Klarman’s buy also comes in the greater context of his declining ardor for energy companies. Once 69% of his portfolio at the end of 2015, the industry represented only 24% at the end of the second quarter. He held one midstream company, Cheniere Energy (LNG, Financial). Of his two exploration and production companies, he reduced Antero Resources Corp. (AR, Financial) by a third and sold out of Bellatrix Exploration Ltd. (BXE, Financial).
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