Billionaire T. Boone Pickens' Energy Portfolio

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Billionaire T. Boone Pickens runs a concentrated $35 million hedge fund called BP Capital, with nearly 45% of his fund invested in his top five stocks, all of which are energy of course. He isn't your typical hedge fund manager, being a former oilman turned hedge fund manager; let's check out his top five picks (see Pickens' other top picks).

Pickens and BP Capital's top pick is Pioneer Natural Resources (NYSE: PXD), which makes up 12.8% of BP's portfolio after a 70% increase in shares owned during the first quarter. Pioneer is primarily a Texas oil and gas explorer, operating in the Permian Basin, Eagle Food Shale and Barnett Shale. 

Pioneer posted 1Q results of $1.02, compared to $1.23 for the same period last year, yet, beating consensus by $0.03. One of the other big positives is that long-term debt fell by 19%. Pioneer expects to see increased drilling at the Permian Basin and Eagle Ford Shale drive production up 12% to 16% in 2013, and at a 13% to 18% compounded annual growth rate through 2015. This solid production growth expectations has gotten the attention of analysts, whose consensus five-year expected EPS growth rate is 17% per annum.

Other targets

A new addition to BP's portfolio and now its second latest stock holdings, making up 9.5% of its portfolio, is Apache Corporation (NYSE: APA), a large independent exploration and production company. A positive for the company is its focus on being liquids rich, with liquids accounting for some 82% of revenues. The strong pricing performance of oil, relative to gas, makes Apache's oil/gas mix a positive.

After missing first quarter EPS estimates, Apache is looking to sell some $4 billion in assets to reduce debt and complete a 30 million share repurchase (7.5% of outstanding shares). Apache has a 2013 CapEx plan of $10.5 billion set, with a focus on the active Permian basin. Apache trades at a trailing P/E of 18, but its forward P/E is only 9, suggesting the market is not fully appreciating the company's potential for growth. 

As far  as hedge fund interest, going into the second quarter there were a total of 41 hedge funds long the stock, which was a 17% increase form the first quarter. Boykin Curry's Eagle Capital Management has the largest position in Apache, worth close to $386 million and accounting for 2.3% of its total 13F portfolio (see Eagle Capital's portfolio).

Coming in third and making up 9.3% of BP's portfolio, after a 580% increase in shares owned during 1Q, is Goodrich Petroleum Corporation (NYSE: GDP)This independent oil and gas company explores for and produces oil and natural gas in Texas and Louisiana.

Production did fall some 22% in 2012, as the company slowed natural gas activity at Haynesville Shale. Goodrich now appears to be shifting more toward oil production and is expected to move to an oil mix of 31% in 2013 from only 15% in 2012. This will be driven by a focus on drilling at its liquid-rich Eagle Ford Shale.

The company expects 2013 oil production to be up 40%-60%, but analysts don't seem to be too impressed. The consensus estimates put five-year EPS growth rate at an annualized 5%. Keep in mind that the oil and gas company has managed to underperform the S&P 500 by 30 percentage points over the past twelve months. 

In fourth is Devon Energy (NYSE: DVN), which makes up 6.8% of Pickens' portfolio. Devon Energy is one of the largest independent oil and gas exploration and production companies in the U.S., seeing production up 5% in 2012. 

Devon posted first quarter EPS of a mere $0.66, well below the $1.05 from the same quarter last year and missing consensus by some $0.18. However, oil production was up 14% and putting its liquids mix to 41%. 

Devon plans to spend some $6.4 billion to $7 billion in CapEx in 2013, with a large part directed toward placing the company as an onshore exploration and exploration company. As well, Devon has a joint venture with Kirby Oil Sands that will help boost its oil sands production by an annualized 20% to 2020. 

Going into the second quarter, Devon had an impressive 45 hedge funds long the stock. This includes its top hedge fund owner First Eagle Investment Management, with a position of close to $449 million and making up 1.5% of its portfolio (check out First Eagle's high yielders).

Occidental Petroleum (NYSE: OXY) ranks fifth in Pickens' portfolio and accounts for 6.1% of its portfolio. Occidental is one of the largest oil and gas companies in the U.S.

Occidental managed to grow oil/gas production by 5% in 2012, and 2013 production is expected to be up 6%. This growth should be driven by Occidental's strong position in the Permian Basin and California.

Occidental also plans to reduce costs and improve margins by reducing production costs by 7% in 2013 and a total target of a 15% decline from 2012. Part of this includes reducing CapEx and rig activity. However, Occidental still expects 5% to 8% total production growth per year through 2014 thanks to improvements in drilling efficiencies. 

The bottom line 

Pickens loves oil and gas, but why? Well S&P expects the U.S. exploration and production companies to grow oil and liquids production by 18% in 2013, where higher-margin oil is expected to boost industry cash flow by 8% in 2013. 

Of Pickens' picks, Apache and Occidental are the best. Apache has a very robust liquids portfolio, and while the other Pickens picks are looking to shift toward the higher margin business, Apache is already there. Goodrich's earnings growth outlook is relatively unimpressive, while Devon is making turning toward oil sands, which can be lower-margin. I do like Pioneer, given its presence in a couple of the top shale plays in the U.S. Lastly, Occidental is planning to reduce costs while boosting production. Now that's a good combo. 

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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool owns shares of Apache and Devon Energy. 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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