This Week in Energy: Seadrill Ltd, Whiting Petroleum, and More

After being very volatile for the first nine months of the year, the price action in crude has suddenly become quiet as more participants buy into OPEC’s attempt to manage the market.

In this article, we recap some important events surrounding five energy companies this week, Oasis Petroleum Inc. (NYSE:OAS), Continental Resources, Inc. (NYSE:CLR), Baker Hughes Incorporated (NYSE:BHI), Seadrill Ltd (NYSE:SDRL), and Whiting Petroleum Corp (NYSE:WLL). In addition, we are going to discuss the hedge fund sentiment towards these stocks.

While there are many metrics that investors can assess in the investment process, the hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor to beat the S&P 500 by around 95 basis points per month (see the details here).

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Continental Resources, Inc. (NYSE:CLR) and Oasis Petroleum Inc. (NYSE:OAS) were in the spotlight this week primarily due to crude prices steadily rising until Friday. WTI futures breached the $50 per barrel mark for the first time in many weeks on Thursday, and there is a sense that OPEC really wants to get its act together and manage oil prices. To try and hammer out all the contentious points before the November meeting, energy ministers from Iraq, Iran, Saudi Arabia and Russia are slated to meet in Istanbul next week. While no agreement is expected to come from the informal meeting, the gathering will give each side more time to discuss the sacrifices Saudi Arabia and others need to make to get crude back to a more sustainable range. Although the cartel hasn’t laid out what that range is, PIRA Energy Group chairman Gary Ross said on Wednesday that Saudi Arabia is likely targeting $50-$60 per barrel. Of the 749 funds that Insider Monkey tracks, 33 held shares of  Oasis Petroleum Inc. (NYSE:OAS)  and 44 were long Continental Resources, Inc. (NYSE:CLR) on June 30.

Although an increasing rig count isn’t necessarily good news for oil prices as it means more supply, the rising number is certainly good news for Baker Hughes Incorporated (NYSE:BHI), which is one of the leading rig servicers in the world. After more than halving during the first two years of the crude crash, the U.S. rig count has made a serious comeback. The U.S. crude oil rig count inched up for the sixth consecutive week, this time by three to 428. The more operating rigs there are, the more Baker Hughes makes in revenue. Throw in the fact that many service industry contracts have built-in price adjustments to crude prices and Baker Hughes’ cash flow could improve noticeably if crude prices trend higher. Ken Griffin‘s Citadel Investment Group almost doubled its stake in Baker Hughes Incorporated (NYSE:BHI) to 3.55 million shares during the second quarter.

On the next page, we examine Seadrill Ltd and Whiting Petroleum Corp.

Seadrill Ltd (NYSE:SDRL) jumped by over 8% this week mainly due to Tuesday’s news that John Fredriksen, the offshore driller’s billionaire chairman, is said to be amenable to loan the company as much as $1.2 billion (in debt) as part of a larger deal with several financial institutions to restructure the offshore driller’s considerable debt burden. The potential restructuring could postpone Seadrill’s considerable maturities until 2020 or later and buy more time for both the company and its creditors to await a recovery in oil prices and offshore drilling activity. After surging sharply on the back of the news news and a temporary short squeeze, shares of Seadrill have settled back into a narrowing range as the stock consolidates. A total of 17 funds from our database were long Seadrill Ltd (NYSE:SDRL) at the end of June, down by five funds from the previous quarter.

After lagging behind its peers due to a $1.06 billion exchange of debt for mandatory convertible notes that may or may not be over (we’re not sure because the company hasn’t disclosed anything publicly about it this week), Whiting Petroleum Corp (NYSE:WLL) shareholders are happy after the stock showed some relative strength and breached the $8.75 to $9 per share resistance that many thought would last longer. It isn’t a secret that Whiting’s performance has lagged many of its peers in the Bakken and among other shale drillers. It also isn’t a secret that Whiting’s break-even is around $50-$55 per barrel, which is almost exactly where WTI is. Although the mandatory convertible muddies the water in the near term, Whiting has a bright future in the long term if crude can rally and stay above $50-$55 per barrel. Among the funds we track, 41 funds owned $493.73 million worth of Whiting Petroleum Corp (NYSE:WLL)’s stock, which accounted for 21.20% of the float on June 30, versus 43 funds and $303.58 million, respectively, on March 31.

Disclosure: None