Investors have been too distracted by litigation related to the 2010 Gulf of Mexico oil spill to see BP’s “improved return on capital in its core business,” Greenlight wrote in a letter dated yesterday. Anadarko is undervalued because of uncertainty over the costs of a lawsuit stemming from a 2006 acquisition, the letter said.
Einhorn joins billionaire investors from Carl Icahn to Warren Buffett and his Berkshire Hathaway Inc. in betting on the long term prospects of oil and natural gas as the global price of crude has averaged more than $100 a barrel for three years in a row, according to data compiled by Bloomberg. Einhorn gained renown for pushing Apple Inc. to return cash to shareholders and by betting on a decline in Lehman Brothers Holdings Inc. shares before its 2008 collapse.
“With an improving world economy, oil and gas are going to be increasingly necessary, and smart investors are seeing that,” said Ed Hirs, a professor of energy economics at the University of Houston who also runs a small production company in Texas. “In this case, they see the value of the underlying assets and realize that it so swamps the specter of loss from litigation that there will be plenty of upside left for investors after the lawsuits are gone.”
Greenlight didn’t disclose the size of its stake in either company, saying only that each was “medium-sized.”
Berkshire reported a stake in Exxon Mobil Corp. valued at more than $3.7 billion in November, and hedge fund investors including Icahn and Barry Rosenstein have seen double-digit returns by investing in energy companies such as Transocean Ltd., CVR Energy Inc. and Marathon Petroleum Corp., then pressuring management for asset sales and restructuring.
BP’s American depositary receipts rose 1 percent to $49.04 at 1:11 p.m. in New York, and Anadarko shares were up 2.8 percent to $83.49, the highest in more than a month. Spokesmen for BP and Anadarko declined to comment. Jonathan Gasthalter, a spokesman for New York-based Greenlight at Sard Verbinnen & Co., declined to comment.
Greenlight said it bought BP American depositary receipts at an average price of $47.39. The London-based oil company’s assets are worth nearly $70 a share even with more negative legal outcomes than the company is anticipating, the letter said. BP has sold more than $50 billion in assets since the 2010 Macondo disaster, the worst offshore oil spill in U.S. history.
BP can create “substantial” value by continuing to sell assets and by repurchasing its stock at a discount, Greenlight wrote in the letter obtained by Bloomberg News.
“He’s missed a good run already,” said Jason Kenney, an analyst at Banco Santander SA. “BP still needs some clarity on their medium-term strategy, but I guess Einhorn sees opportunity in the current valuation.”
BP has gained 9 percent in London since Oct. 29, when it announced third-quarter results that beat analyst expectations, unexpectedly raised the dividend and expanded its program of asset sales.
Greenlight purchased Anadarko shares at an average of $78.55 in mid-December after investors “dumped” the stock when a federal judge ruled that the Woodlands, Texas-based company may have to pay $5 billion to $14 billion in a lawsuit, according to the letter.
U.S. Bankruptcy Judge Allan Gropper in Manhattan has yet to decide the amount Anadarko must pay for environmental and health claims related to the 2005 spinoff of Tronox Inc. by Anadarko’s Kerr-McGee unit.
“Our legal analysis suggests that the ultimate payment is likely to be the lesser of the two amounts and will be partly tax deductible,” Greenlight wrote.
Out of 28 analysts who have updated their recommendations since the Dec. 12 court ruling, 24 recommend investors buy the stock, according to data compiled by Bloomberg.
Greenlight last quarter sold its stakes in Airbus Group NV and ThyssenKrupp AG, according to the letter. Greenlight’s largest disclosed long positions at the end of the fourth quarter were Apple, General Motors Co., Marvell Technology Group Ltd., Micron Technology Inc. and Vodafone Group Plc. Longs are bets that stocks will rise.
Greenlight Capital (GLRE) funds rose 19 percent last year, the firm said in the letter.