[CHICAGO] Money manager David Einhorn slammed the shale drilling industry that ushered in a new era of US oil production as wasteful, expensive and a terrible investment.
Shale explorers including Pioneer Natural Resources Co. and EOG Resources Inc plunged as investors heeded Mr Einhorn's remarks at the Sohn Investment Conference in New York on Monday.
Mr Einhorn, who manages US$12 billion as president of Greenlight Capital, said investors who are bullish on oil prices should avoid buying stock in producers and instead invest in the commodity itself. He singled out Irving, Texas-based Pioneer for special attention.
"Pioneer burns cash and isn't growing," said the 46-year- old. "Why is the market paying US$27 billion for this company?"
Pioneer fell as much as 5.3 per cent for the biggest intraday decline since Feb. 11. EOG had been up as much as 2.5 per cent before Mr Einhorn's comments triggered a sell-off that wiped out most of Monday's gains. Both companies recovered some of those declines later: Pioneer closed 1.9 per cent lower at US$168.33, and EOG was up 0.5 per cent.
Tadd Owens, a spokesman for Pioneer, didn't immediately respond to a voicemail seeking comment. EOG spokeswoman K Leonard also didn't immediately respond.
On Monday, Mr Einhorn also singled out Concho Resources Inc, Whiting Petroleum Corp. and Continental Resources Inc. as examples of shale explorers that spend too much and generate too little cash. A Concho spokeswoman said she wasn't immediately able to comment; spokespersons for Whiting and Continental didn't immediately respond to requests for comment.
Shale explorers revolutionised North American oil and natural gas production with sideways drilling and hydraulic fracturing techniques honed in Texas, Oklahoma and North Dakota. As a result, US crude output almost doubled in the past eight years to more than 9.3 million barrels a day, more than every member of OPEC except Saudi Arabia.
Mr Einhorn has a long history of betting against companies within his New York-based hedge fund firm. He's also a frequent speaker at the annual Sohn conference where he explains his rationale. The strategy has had mixed success.
In May 2008, he told investors they should bet against Lehman Brothers Holdings Inc. because it needed more capital to recover from credit-market losses. Lehman Brothers filed for bankruptcy that September.
At the Sohn conference last year, Mr Einhorn said he was betting software company Athenahealth Inc could fall as much as 80 per cent. The prediction has yet to come true: the Watertown, Massachusetts-based company has fallen 7.6 per cent since Mr Einhorn's pronouncement and was never down more than 16 per cent during the intervening 12 months.
In 2014, he also criticised "cool kid" companies in the technology sector that he faulted for using buzz words in their financial documents to lure venture capital.