Crude’s historic slide has hurt energy stocks — but these oil insiders are buying

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The price of oil has plummeted over 21% since October 3. Brent crude has traded lower for the last 10 consecutive sessions — it’s longest losing streak since 1984.

Crudes’ historic slide can be blamed on accelerating U.S. production, a softening of U.S. oil sanctions on Iran, and worries that the US-China trade war could weaken the global economy and thus demand for oil.

Nymex Crude last 15 weeks

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And of course, the plunge in oil prices has hurt energy stocks. The S&P Oil and Gas Exploration and Production ETF (XOP) is down about 19% since early October highs. The SPDR Oil & Gas Equipment & Services ETF (XES) is down 23% over the same period.

However, by broadly selling the energy group, investors have painted all oil stocks with the same brush. Some energy stocks may have fundamentals that are positive despite crude’s slide. A great way to identify bargains in the energy sector to watch the behavior of corporate insiders.

A number of energy-related companies have seen unusually aggressive insider accumulation. These stocks may be the biggest winners when the inevitable rebound take place. Here is a list of stocks showing the greatest insider accumulation over the last couple weeks.

Encana Corp (ECA)

Since November 5, twelve separate insiders at Encana Corp have purchased over $2.66 million shares at an average cost of $8.78. Encana stock closed Friday at $8.83, down about 35% since the beginning of October.

On Nov. 1, Encana surprised investors by announcing an agreement to buy Newfield Exploration (NFX) in an all-stock deal valued at about $5.5 billion. The merger would create North America’s second-largest producer of oil and natural gas from shale.

Investors punished ECA shares after the announcement, and analysts reacted with a barrage of ECA downgrades. However, this article on Seeking Alpha presents a bullish view of the acquisition.

Four days after the merger announcement, hedge fund legend Steve Cohen’s Point72 Asset Management filed a 13G disclosing a 5% position in Encana, making it the $25 billion fund’s second largest position.

Resolute Energy Corp (REN)

On November 1, 10% holder Kimmeridge Energy Management disclosed in Form 4 filings that it bought 446,000 shares of Resolute Energy on October 30 – Nov. 1, raising the hedge fund’s position to 11.9%. Kimmeridge initially filed a 13D in June, saying that:

Resolute continues to trade at a steep discount to relevant peers due to a bloated cost structure and subscale assets, rendering it unable to compete as a standalone company in the highly competitive and lucrative Permian Basin.”

Resolute was also the target of a 13D filing by Lion Point Capital on October 23.

Resolute is a Delaware Basin oil and gas producer with valuable assets but disappointing operating results, which has led to a significant undervaluation relative to peers.

Monarch Alternative Capital, Kimmeridge, Lion Point, and VR Capital Group all have called for a sale of the company. In total, the activist hedge funds control about 35% of REN shares.

RES, which closed at $30.35 on Friday, is down about 22% since the beginning of October.

Recent insider buying – Energy stocks

Last Filing

Company

Ticker

Industry

# Insiders

Last Trade

Total Shares

Avg. Price

Total

1-Nov-18

Resolute Energy Corp REN Independent Oil & Gas

1

1-Nov-18

445,845

26.81

$11,954,668

8-Nov-18

Encana Corp ECA Major Integrated Oil & Gas

12

8-Nov-18

303,323

8.78

$2,664,054

8-Nov-18

Nabors Industries Ltd. NBR Oil & Gas Drilling & Exploration

2

6-Nov-18

297,000

5.3

$1,573,934

6-Nov-18

McDermott International Inc. MDR Heavy Construction

4

6-Nov-18

127,300

9.86

$1,254,804

5-Nov-18

Tallgrass Energy, Lp TGE Oil & Gas Pipelines

3

1-Nov-18

53,828

21.31

$1,147,316

6-Nov-18

Williams Companies, Inc. WMB Oil & Gas Pipelines

5

6-Nov-18

41,000

25.79

$1,057,514

6-Nov-18

Basic Energy Services, Inc. BAS Oil & Gas Equipment & Services

1

2-Nov-18

59,502

7.42

$441,588

23-Oct-18

Crosstex Energy LP XTEX Independent Oil & Gas

1

19-Oct-18

16,700

18.26

$304,942

5-Nov-18

Viper Energy Partners LP VNOM Independent Oil & Gas

1

1-Nov-18

3,000

33.68

$101,049

Source: Whalewisdom.com

Nabors Industries Ltd. (NBR)

Two insiders at Oil and Gas driller Nabors Industries purchased over $1.57 million of NBR stock in early November.

Director and energy industry veteran John Yearwood disclosed on Nov. 1 he bought 197,000 shares of NBR at $5.14, spending over $1 million. A director since 2010, it was Yearwood’s initial open market buy of NBR, and he increased his holdings by 98%.

Then on Nov. 6, John Kotts, a Nabors director since 2013, reported buying 100,000 shares at $5.61, increasing his holdings by 35%.

Nabors, like the entire oil equipment services group, has been hit hard since early October, dropping over 20% to Friday’s close of $5.25. The stocks intraday low of $4.48 on Oct. 30 came after it’s 3rd quarter earnings report, and was its lowest level since late 2017. Nabors operating results missed expectations due to weak international revenues, lower margins and higher expenses.

McDermott Int’l Inc (MDR)

McDermott Int’l stock has had an ugly couple of months, falling from $19 on Sept. 20 to it’s Nov. 11 close of $8.50, a 55% drop. The Energy services provider touched $7 intraday on Oct. 3, bouncing off lows hit in late 2008, 2015 and 2016.

On Oct. 30 MDR reported an earnings miss and announced plans to sell significant assets. KeyBank downgraded MDR to Sector Weight from Overweight following the results, saying it sees management as “staging a potential recovery through thoughtful execution, but our concerns are more around timeline and incremental risks that could arise and stretch into late 2019, keeping the stock volatile.”

But four MDR insiders took advantage of the post-results weakness to add significantly to their holdings, buying $1.25 million of stock at prices ranging from $8.68 to $10. It was the first insider buying at MDR since 2014.

Director Gary Luquette, who has been with the company since 2013 but never bought MDR shares on the open market, purchased 50,500 shares at $10 on Nov. 6, increasing his holdings by 127%. CEO David Dickson, CFO Stuart Spence and SVP Ian Prescott were also significant buyers of MDR.

After the historic selloff, the oil and gas sector is due for a big bounce, and if fears of a global slowdown prove premature, the group could see big gains. As always, use insider buying as a starting point for further research.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the article.