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Hedge Funds Acquire Ensco, Schlumberger While Stocks Slumped

Hedge funds bought $1.6 billion of shares in two oil-services companies in the second quarter as analysts said a drilling boom in the U.S. may spread overseas, helping reverse a slump in the companies’ stock prices.

Ensco Plc (ESV) and Schlumberger Ltd. (SLB) received the most new investment by hedge funds of all energy companies, beating producers such as Marathon Oil Corp. (MRO), according to calculations by Bloomberg from regulatory filings this week. MHR Fund Management LLC, Vinik Asset Management LP and SAC Capital Advisors LP topped the list of buyers.

Oil companies have to boost drilling in expanding areas of the world such as in Asia and off the coasts of Brazil and West Africa to meet growing energy demand. Drilling for crude and natural gas in North America increased at five times the pace of the rest of the world in the past year.

“International has yet to really inflect, but we’re beginning to see some progress on that front,” said Bill Herbert, an analyst at Simmons & Co. in Houston, who has an “overweight” rating on Schlumberger and Ensco. “You’re going to see meaningful growth on international, deepwater and exploration-related activity.”

New York-based MHR acquired $325 million of Ensco stock based on June 30 prices, and Vinik of Boston added $137 million of Schlumberger shares, the filings at the Securities and Exchange Commission in Washington show.

MHR Managing Principal Hal Goldstein didn’t respond to a phone message seeking comment. An executive at Vinik who asked not to be named said the firm never comments to the media.

11% Weighting

Hedge funds had 11 percent of their equity investments in energy at the end of the quarter, the filings showed. Financial stocks had the biggest allocation, 18 percent, while information technology companies had 17 percent.

Schlumberger, the biggest oil services company, has more exposure to international operations than its rivals, giving it an advantage should growth shift from North America, Herbert said. Ensco may add sales while the biggest offshore driller, Transocean Ltd. (RIG), is tied up in litigation over the explosion of its Deepwater Horizon rig in the Gulf of Mexico last year, which triggered the worst offshore oil spill in U.S. history.

Schlumberger today rebounded from a 1.9 percent decline and traded up 0.3 percent at $74.66 at 10:15 a.m. New York time. Ensco’s American depositary receipts climbed 1.1 percent to $43.98.

Transocean and Halliburton Co. (HAL), the second-biggest oil services firm, were among the energy companies that hedge funds sold most, with about $284 million and $326 million of net sales respectively, according to Bloomberg calculations made based on information in the filings.

Ensco’s Growth

Kinder Morgan Inc. and ConocoPhillips (COP) were the most sold energy stocks, the filings from 819 hedge funds with $1.2 trillion in holdings showed.

Ensco became the second-ranking offshore driller with the acquisition of Pride International Inc. in May, which expanded its presence in growing drilling markets such as Brazil and West Africa.

“Ensco’s now the exciting new thing,” said Matt Beeby, an analyst at Global Hunter Securities in Fort Worth, who rates the shares a “buy.” “The market is looking for a go-to offshore driller. It used to be Transocean.”

The purchases of Ensco and Schlumberger stock were made in a quarter when they were relatively out of favor. Schlumberger fell 7.4 percent in the period while Ensco’s ADRs declined 7.9 percent. They lost ground against the Standard & Poor’s 500 index, which dropped 0.4 percent. Both extended their declines in the following months.

Signs are beginning to emerge that international operations may be set to increase, Herbert said. More rigs are being built, and countries have approved more drilling projects.

Active Rigs

There were 1,150 oil and gas rigs active outside the U.S. and Canada in July, close to the 24-year high of 1,189 posted in February, according to Baker Hughes Inc. (BHI), a drilling service company that tracks global rig use. North American operations rose to 2,423 in August from 2,303 at the end of July.

Steven A. Cohen’s SAC Capital bought about $81 million of Schlumberger stock, based on June 30 prices, and Viking Global Investors LP, run by former Tiger Management LLC fund manager Andreas Halvorsen, bought about $121 million.

A spokesman for SAC Capital Advisors declined to comment. Calls to Halvorsen weren’t returned.

“They may be looking to increase their international exposure as their risk appetite increases and the general market looks to take risk off the table,” Brian Youngberg, an analyst at Edward Jones in St. Louis said in an Aug. 15 telephone interview.

To contact the reporters on this story: Todd White in Madrid at twhite2@bloomberg.net; Ben Sills in Madrid at bsills@bloomberg.net; David Wethe in Houston at dwethe@bloomberg.net

To contact the editor responsible for this story: Timothy Coulter at tcoulter@bloomberg.net

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