Institutional shareholders trimmed positions in most pure-play shale gas producers in the third quarter, taking profits as natural gas prices at the benchmark Henry Hub came off multiyear highs, and putting more money to work in operators with access to LNG export terminals.
"Energy companies put up some spooky-good results with the key themes being record profits, strong demand [and] increased buybacks," Matt Sallee, president of energy infrastructure fund TortoiseEcofin, said in a look at third-quarter earnings after Halloween.
Of the 10 upstream shale gas stocks surveyed by S&P Global Market Intelligence, only three — America's largest gas producer by volume EQT Corp., Appalachian producer Coterra Energy Inc. and Haynesville Shale producer Comstock Resources Inc. — saw a net increase in investment by institutional traders. The remaining seven companies saw net reductions in holdings by institutions, according to SEC Form 13F filings.
Aside from index fund managers adjusting their positions, two major players — activist investor Daniel Loeb's Third Point LLC and Ken Griffin's Citadel Advisors LLC — bought healthy chunks of shale gas producers Southwestern Energy Co., Range Resources Corp. and Comstock. Southwestern and Comstock both have significant operations in the Haynesville Shale on the Texas-Louisiana border, next door to the Gulf Coast's LNG terminals.
Third Point clipped its stakes in Appalachian producers EQT and Antero Resources Corp. for new stakes in Comstock and Range. "Third Point remains cautious but is looking to deploy capital into ... world-class companies trading at reduced multiples," fund managers said in a letter to investors in its U.K. closed-end fund, Third Point Investors Ltd.
"After July's ebullient 'bear market rally' sparked by promising signs of inflation reduction, rate containment and hopes of a soft landing, the mood in August and September became increasingly dour," Third Point Investors said. "While the investment manager is sympathetic to many of these economic and geopolitical concerns, it is seeing very attractive valuations, particularly assuming an economic scenario short of financial Armageddon."
Comstock saw the largest gain in value in the third quarter as demand for feedstock for U.S. LNG exports to Europe climbed. Energy investment bank Tudor Pickering Holt & Co. analyst Jake Roberts added Comstock to his portfolio after the third quarter ended, based partly on the location of its operations, but he did not recommend a "buy" because Comstock has been slow to return cash to shareholders.
"Comstock will ultimately be well-positioned to take advantage of a robust gas market given inventory depth and position to favorable Gulf Coast markets, but our view that natural gas will be pressured through 2024 before heading higher in 2025-plus has us staying on the sidelines for now," Tudor Pickering Holt analysts said in November.
S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.