First Pacific's Rodriguez Says Buy Drillers, Predicts $100 Oil
bloomberg.com
By Joe Carroll
Feb. 23 (Bloomberg) -- Robert Rodriguez, who oversees $10.7 billion at First Pacific Advisors LLC, is buying shares of oil drillers because he says crude will top $100 a barrel within a decade.
Rodriguez, whose FPA Capital Fund has nearly doubled the returns of the Standard & Poor's 500 Index over the past five years, said oil will rise because producers aren't finding new reserves fast enough to replace declining production from some of the world's biggest fields.
Output at Mexico's Cantarell field, the largest in the western hemisphere, slumped by 25 percent last year. Production from Kuwait's Burgan field, the biggest oil deposit outside Saudi Arabia, is also declining. Drillers such as Ensco International Inc. and Rowan Cos. will be in high demand as the hunt for new reserves intensifies, Rodriguez said.
``I'm bullish on oil and the oil drillers, partly because production from Cantarell has fallen off a cliff,'' Rodriguez, chief executive officer at Los Angeles-based First Pacific, said in a telephone interview. ``The trend for oil prices is higher. The era of low-cost energy is over.''
Rodriguez has 19 percent of the $2.1 billion FPA Capital Fund invested in oil and natural gas stocks, primarily companies that own and operate drilling rigs. About 40 percent of the fund is in cash because he says most stocks are too expensive relative to future estimated profits.
Biggest Holdings
Dallas-based Ensco, an oil driller that more than doubled its full-year profit last year, is Rodriguez's second-biggest holding, accounting for about 5 percent of the fund. He'd buy more of the shares if he wasn't already at the limit allowed under the fund's rules.
Trinity Industries Inc., a maker of railcars and barges, is the fund's third-largest investment. The Dallas company, which gets 12 percent of its sales from the energy industry, almost tripled net income last year to $230 million. The shares have doubled in the past two years.
Other energy-related stocks in the fund's top 15 include driller Patterson-UTI Energy Inc., oilfield-equipment maker National-Oilwell Varco Inc., and Houston-based oil and gas producer Rosetta Resources Inc. The fund's biggest holding is Avnet Inc., a Phoenix-based distributor of semiconductors.
``We're monitoring other oil and gas producers and we may up our stake in that area,'' Rodriguez said. He declined to name the companies under consideration.
FPA Capital Fund
The FPA Capital Fund, which has been closed to new investors since July 2004, returned an average of 14.2 percent annually over the past five years. That compared with a 7.6 percent annual return including dividends for the S&P 500.
The fund has risen 5.8 percent this year, versus 2.5 percent for the S&P 500.
Rodriguez is hoarding cash because he expects increasing oil-market volatility to spook rival fund managers into dumping shares that he can snatch up at a discount. Having a large cash position means he won't have to sell any stocks at a loss to free up funds for new investment opportunities.
``Most fund managers are gutless wonders,'' said Rodriguez, 58. ``Volatility is your friend if you use it appropriately.'' New York crude oil futures touched a record $78.40 a barrel last July and dropped briefly below $50 last month. They rose to $61.54 a barrel at 10:55 a.m. today on the New York Mercantile Exchange.
Black Monday Buyer
When equity markets collapsed on Oct. 19, 1987, in the infamous Black Monday crash, Rodriguez began buying stock in discount brokerage Quick & Reilly for about $3.75 a share, eventually building a 10 percent stake.
FleetBoston Financial Corp., now part of Bank of America Corp., bought the brokerage in 1998 for the equivalent of $41 a share.
``I've made my money over the past 30 years by being a shrewd buyer during times of chaos,'' Rodriguez said.
Rodriguez says he arrived at his $100-a-barrel forecast by calculating the average annual change in U.S. oil prices since 1933. He cut that average annual percentage gain in half to estimate how much prices will rise during the next decade.
``I think that's actually a conservative number,'' he said. ``We'll be above $100.''
Growth in worldwide oil demand is expected to accelerate to 1.6 percent this year from a growth rate of 0.9 percent in 2006, according to the International Energy Agency in Paris. Exxon Mobil Corp., the world's biggest oil company, expects global demand to continue rising by 1.6 percent a year through 2030.
The Cantarell field in the Gulf of Mexico pumped 1.44 million barrels of oil a day in December, down from 1.92 million at the start of 2006, according to Mexican government statistics. The field, produced when the Chicxulub meteor slammed into the Earth and created a 950-foot-thick pile of pulverized rock, was discovered in 1976 and began producing oil three years later.
To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net
Last Updated: February 23, 2007 11:25 EST |
