Oil & Gas Moneyball
A billionaire outsider buys companies and assets in the dented and damaged section and sells when the buyer pays a premium. It's cheap, misunderstood, and one of my favorite ideas.
Moneyball: The Art of Winning an Unfair Game tells the compelling story of the Oakland Athletics organization - which in the late 1990s and early 2000s was consistently among the lowest-payroll teams in baseball, yet regularly finished seasons near the top of the league.
Despite their low budget, the A’s out-competed the wealthier teams by acquiring undervalued, out-of-favor players. By focusing on subtle measures of value that others ignored, the A’s were able to identify and pick up good players for cheap and win baseball games, despite having half the budget of teams like the Yankees and Dodgers.
The company I’m writing about in this article is pursuing a similar strategy in the oil & gas space. This company buys out of favor assets, improves capital allocation and operational efficiency and generates cash. And in some cases, it sells assets at high prices to reduce leverage and to fund the next acquisition.
It’s essentially Moneyball, but for oil & gas. Buying what the market undervalues, selling what it overvalues, compounding returns.
Just as the Oakland A’s faced heavy criticism for their approach in the early 2000s, this company is misunderstood and overlooked for its assets and approach. It is trading at a discount to peers and near the lower end of its multi-year trading range, despite successfully executing on this value creating strategy, and despite line of sight of more to come.
Even better: the company is controlled by a billionaire capital allocator with a long track record of successfully achieving high returns on invested capital. And its shares are currently trading at a large discount to my estimate of fair value.
A winning strategy with high performing people at a big discount makes this idea particularly compelling. I’m excited to add it as the next idea in my series of favorite oil and gas investments for Bison Insights, which to date have all outperformed the broader energy index (XOP) since publication:
Disclaimer: This is for informational and educational purposes only. This is not an offer, solicitation, or investment recommendation. Please consult an advisor and do your own diligence. Past performance may not repeat itself.
