Brenham Capital: Longest Long In Oil
Focused on energy industry stocks, the Dallas Texas based Brenham Capital continues to kill it. The fund was up 23% last year and was up 3.4% in the first quarter, outperforming both its major benchmarks - the S&P 500 Energy Index and the Russell 2000 Energy Index.
Since inception in January 2012, the fund has returned 111%. Over that same period, both the S&P 500 and Russell 2000 Energy Indices have posted negative returns.
Even as the Select Sector Energy ETF (XLE) has rallied 11% this year, Brenham is becoming increasingly bullish on the energy sector. Quoting an old-timer from the oilfield, Brenham notes that “...when things get really good in the oil patch, they never stay that way for long ... and when things get really bad in the oil patch, they never stay that way for long either.”
The last couple years have been painful for many energy investors, as the XLE is still down 30% over the last 24 months. Brenham, nonetheless, thinks this is a great time to put more money to work on the long side.
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The Longest Of Longs: Energy Industry Stocks
Brenham has three positions that each make-up roughly 10% of their portfolio. The most interesting of the three appears to be Newfield Exploration (NFX).
This is an oil exploration and production company that owns over 300,000 net acres in the Anadarko Basin in Oklahoma. Newfield’s core focus right now is on SCOOP and STACK, which are two plays in the Anadarko Basin that are very promising.
In particular, Brenham has found that the returns from these plays in Oklahoma provide the second-best returns of any North American oil plays - behind only West Texas’ Permian Basin. Notably, the fund believes that the best way to invest in shale plays is quickly. It’s best to invest in shale plays soon after their discovery and before other, slower, investors realize it. Case in point - the Permian, where drilling companies’ stocks were tripling in just a matter of years as investors started taking a closer look at the returns that oil companies were generating from the shale play.
For Newfield, it’s still early as their key plays are still being developed. Thus, Newfield’s acreage is grossly undervalued by Wall Street. The other kicker? Management. They’ve been able to effectively sell off non-productive assets and reinvest in faster-growing acreage, leaving them with plenty of liquidity and a clean balance sheet.
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