SM Energy (NYSE:SM) also detracted from the Fund’s performance in the quarter by 14 basis points. SM declined in the quarter because the company issued a large secondary offering of stock to help pay for a couple of large properties it acquired in the Permian Basin. We agree with management that the Permian Basin offers very attractive oil and gas properties, but these properties will take a couple of years to develop and start producing cash flow for shareholders. In anticipation of a large equity offering, and after benefitting from the stock’s substantial appreciation during 2016, we had already reduced the Fund’s position in the stock by over 60% before the quarter commenced. Notably, SM was up 75% for the year, even after an approximately 11% decline in the fourth quarter.
From FPA Capital's fourth quarter 2016 commentary.
