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Saturday, November 25, 2017

Hedge Funds' Big Bets on Energy Companies Pummeled

Posted by November 16, 2014

Some of the hedge fund industry's most respected firms made bigger bets on a wide swatch of energy companies during the third quarter only to watch the stocks get pummeled by falling crude oil prices.

Robert Citrone's Discovery Capital Management raised its holding in Texas oil driller Diamondback Energy by 20 percent to own 1.4 million shares at the end of the third quarter, according to a regulatory filing made with the Securities and Exchange Commission. Diamondback's stock price fell 16 percent over the quarter.

The fund manager also raised its bet on oil and gas exploration and production company Cimarex Energy by 37 percent. The stock dropped 11 percent over the quarter.

Citrone's fund has been one of the hedge fund industry's biggest losers this year, falling some 12 percent during the first nine months of the year. The losses were blunted in late October when markets dramatically recovered in what investment managers have called the "Halloween Hop."

Citrone's hopes for Cimarex were shared by other managers, including Senator Investment Group, which doubled its holding, to own 1.9 million shares at the end of the third quarter.

But fears about a possible supply glut sent oil prices tumbling, which triggered broad losses in energy companies that have been widely held by hedge funds for months.

With many funds crowded into the same names and the selloff continuing in October, industry investors speculated that the ownership map would be dramatically redrawn in the fourth quarter because funds were forced to get out of the trades.

Boston-based Adage raised its holding of Noble Energy by 19 percent to own 4 million shares at the end of the third quarter. But Noble's share price dropped 11 percent over the third quarter. Adage also raised its stake in Valero Energy by 47 percent to 4.2 million shares. Valero's share price fell 8 percent over the third quarter.

The energy sector rout also touched solar energy companies like Sunedison Inc. amid speculation that lower oil prices would crimp interest in alternative energy sources. Sunedison shares fell 18 percent over the third quarter, hitting David Einhorn's Greenlight Capital, which owned 21.3 million shares at the end of the third quarter. Pine River Capital Management increased its Sunedison position by 67 percent to 1 million shares.

Some funds were able to sidestep trouble by taking money off the table. Blue Harbour, for example, cut its stake in Nabors Industries, which owns the world's largest land-based drilling rig fleet, by 59 percent to 2.4 million shares, avoiding some of the stock price's 24 percent drop. Point72 Asset Management, the family office of Steven Cohen once known as SAC Capital Advisors, no longer listed Nabors in its filing, suggesting it sold all of its 1.1 million shares.

Tiger Eye Capital sold out of oilfield services company Halliburton Co., whose share price dropped 8 percent over the third quarter.

But if investors who raised their stake in Halliburton held on, they saw a nice spike this week as the company looked to buy rival Baker Hughes Inc.. Halliburton is now mulling a hostile deal after Baker Hughes pulled out of talks, people familiar with the matter told Reuters.

Pine River raised its stake in Halliburton by 186 percent to 996,535 shares and bought a new position in Baker Hughes in the third quarter, to own 670,509 million shares at the end of the quarter. (Reporting by Svea Herbst-Bayliss; Editing by Leslie Adler)

 

Cimarex EnergyValero EnergyNabors Industries