T. Boone Pickens' Three Top Positions

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

T. Boone Pickens, an 85-year-old the founder of BP Capital, mainly invests in energy industry, mainly the oil/gas sector. His fund concentrates into several big oil/gas exploring and refining companies, with each of them representing more than 5% of his total portfolio. In this article, I will cover the three largest stocks in his portfolio including Valero Energy (NYSE: VLO), Southwestern Energy (NYSE: SWN) and Range Resources (NYSE: RRC). These three stocks combined accounted for more than 30.6% of his total portfolio as of Dec 2012.

Valero – A 12% position

Valero Energy, incorporated in 1981, is an independent petroleum refining and marketing company, operating 16 petroleum refineries in the U.S., Canada, the U.K., and Aruba, and 10 ethanol plants in the U.S. Valero has three main business segments: refining, ethanol, and retail. The majority of its revenue, $123 billion, or nearly 88.3% of the total operating revenue, was generated from the refining segment. The retail segment ranked second with $12 billion in revenue in 2012 while the ethanol segment contributed only $4.3 billion in sales. While the refining and retail segment generated $4.45 billion and $348 million in operating profits, the ethanol segment produced a loss of -$47 million.

As of Dec. 2012, T. Boone Pickens owned nearly 353,000 shares of the company, accounting for nearly 12% of his total portfolio. At $44 per share, Valero Energy is worth around $24.4 billion on the market. The market values the company quite cheaply, at only 4.82 times EV/EBITDA. At this current price, Valero Energy pays its shareholders a dividend yield of 1.8%. However, it still seems to have a conservative dividend policy, as the dividend payout ratio is only 17%.

Southwestern Energy - 100% proved reserves in natural gas

Southwestern Energy is an independent oil/gas company focusing on two main business segments: exploration and production, and midstream services. It had more than four trillion cubic feet equivalent in proved reserves at the end of 2012, with 100% of the proved reserves being natural gas. The majority of its revenue, $1.95 billion, or 71.8% of the total 2012 revenue, was generated from the exploration and production segment, while the midstream services contributed around $765.3 million in sales in 2012. However, while the midstream services generated an operating profit of $294.3 million, its exploration and production produced a loss of more than -$1.4 billion. A huge loss was caused by a $1.94 billion in natural gas and oil properties impairment charge.

T. Boone Pickens held 307,634 shares in the company, accounting for nearly 10.2% of his total portfolio as of Dec. 2012. At $39 per share, Southwestern Energy is worth nearly $13.7 billion on the market. The market is valuing the company at 9.22 times EV/EBITDA. Southwestern Energy doesn’t pay any dividends to its shareholders.

Range Resources – Quite expensively valued

Range Resources is an independent energy company based in Texas, with around 6.5 trillion cubic feet equivalent in its proved reserves. Range Resources also had the majority of its proved reserves in natural gas, accounting for 74% of its total 2012 proved reserves. T. Boone Pickens owned 136,050 shares in the company, representing nearly 8.5% of his total portfolio at the end of Dec. 2012. Range Resources is trading at $82 per share, with a total market cap of $13.4 billion. It is valued quite expensive in the market, at more than 20.3 times EV/EBITDA. The company is paying dividend to its shareholders, but the dividend yield is quite low at only 0.2%. As mentioned in the previous article, Range Resources had also had a fluctuating operating performance and not-so-strong balance sheet. It has recently announced that it would issue $500 million senior subordinated debt due 2023 to repay its borrowings.

My Foolish take

Southwestern has a reasonable valuation, but it is certainly not so cheap. Range Resources, on the other hand, is valued quite expensively. Among the three, I like Valero the best due to its decent dividend yield with conservative payout ratio and its current low valuation.


Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Range Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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