Hedge funds boost energy holdings as oil rout brings opportunity

Boston

HEDGE fund managers are betting hundreds of millions of dollars that Cheniere Energy Inc, Pioneer Natural Resources Co and Williams Cos will be among the energy companies that survive the worst oil rout in decades.

Seth Klarman of Baupost Group bought 898,063 shares in Texas shale explorer Pioneer during the second quarter while fund manager Richard Perry's firm added 6.26 million shares of Williams, according to regulatory filings.

Energy investors have lost more than US$1.3 trillion in shareholder value as the price of oil dropped about 60 per cent from its peak last year, according to data compiled by Bloomberg. And now hedge fund managers are on the hunt for bargains, said oil and gas restructuring specialist John Castellano at AlixPartners in Chicago. Many companies are struggling to survive as revenue falls and banks curtail their access to credit.

"Not every oil and gas company is distressed," Mr Castellano said. "There are good companies out there that have good assets, but because the entire market has come down everyone's equity has been hit by a reduction in value."

Eric Mindich's hedge fund Eton Park Capital Management bought a stake worth about US$118 million in Williams, the Tulsa, Oklahoma energy infrastructure company that rejected an unsolicited US$48 billion takeover bid in June. Williams hired Barclays plc and Lazard Ltd to "explore a range of strategic alternatives" after saying the offer was insufficient. Investors are betting on a possible sale soon that may pay them a premium.

Mr Perry's Williams stake increased by US$381.7 million during the quarter to US$548.1 million, the biggest gain among its US public equities. Mr Perry also increased its stake in Cheniere, adding 666,568 shares.

Jana Partners, the US$11 billion hedge-fund firm run by Barry Rosenstein, also took a stake in Williams, buying 4.21 million shares during the quarter.

"There hasn't been a significant separation of the winners and the losers yet and I think we're going to see the start of it this fall" among energy firms, said Omar Samji, a partner in the energy practice of law firm Jones Day in Houston. The winners "are going to be companies that can operate in this environment, that can make money."

Boston-based Baupost increased its position in Cheniere by 1.56 million shares to a value of US$1.06 billion as at June 30. Cheniere remains Baupost's largest US stock holding. Baupost, which has US$28.5 billion in assets, also now holds a US$563.8 million stake in Pioneer as at June 30, according to a regulatory filing.

Baupost lost about 1.4 per cent last quarter as energy stocks fell. Pioneer, a fracking company that hedge fund manager David Einhorn in May called overvalued, dropped 15 per cent in the quarter, while Cheniere declined 11 per cent. Both stocks have extended their declines since then.

Baupost reduced its position in Antero Resources Corp, while buying a new stake in Sanchez Energy Corp.

Point72 Asset Management, the firm that manages billionaire Steve Cohen's investments, also boosted its energy holdings in the second quarter. It EOG Resources Inc stake increased by US$242.9 million to US$245.5 million, its largest US equity-listed holding at mid-year. Point72 also bought more shares in Occidental Petroleum Corp, with the stake rising by US$189.2 million to US$212.6 million, according to securities filings.

Highfields Capital Management, the US$12.5 billion management firm run by Jonathon Jacobson, took new positions in Sempra Energy and Cenovus Energy Inc, giving it respective stakes worth US$137.4 million and US$70 million. Highfields reduced its investment in Enbridge Inc by 1.96 million shares, bringing the value of that investment to about US$176 million.

Billionaire oil investor T Boone Pickens saw the value of his energy holdings more than double during the second quarter to US$72.9 million as he added stakes in 14 new companies, including oil field contractors Pioneer Energy Services Corp and C&J Energy Services Ltd. He sold off his interests in a dozen other companies, including Schlumberger Ltd, the world's largest service provider.

Money managers who oversee more than US$100 million in equities must file a Form 13F within 45 days of each quarter's end to list their US-traded stocks, options and convertible bonds. The filings don't show non-US traded securities or how much cash the firms hold. BLOOMBERG