Institutional investors continued to abandon pure-play Appalachian shale gas stocks in the second quarter, according to an S&P Global Market Intelligence analysis of Form 13-F filings detailing the holdings of large investors.
While slightly more shares of the 10 Appalachian gas companies were bought than sold in the second quarter, 17 of the 30 largest individual company sales in the sector involved big investors exiting their company holdings completely. Three of those 17 were exits by investment manager Key Group Holdings (Cayman) Ltd. Other exits came from major index fund manager FMR LLC, the owner of Fidelity Investments, private equity and venture capital investors at Warburg Pincus LLC, and value funds such as River Road Asset Management LLC.
These exits follow on a first quarter in which institutional investors were net sellers of the sector, reducing their holdings by a net 30.7 million shares during that period.
An equally-weighted index of the 10 Appalachian shale drillers has lost more than 60% of its value in the last 12 months as drillers reined in production growth and costs while the commodity price of natural gas stayed low. Worse, the value of the contracts for delivery in the future are pegged at less than $3/MMBtu for the next several years, indicating little price relief on the horizon for gas producers.
The single biggest seller in the sector was fund manager Capital Research & Management Co., which unloaded 21 million shares of Cabot Oil & Gas Corp. — one of the few producers with consistent positive cash flows, dividends and a stock buyback program.
AQR Capital Management LLC, meanwhile, cut its stake in Chesapeake Energy Corp. by 97%, or 20.3 million shares, in the quarter. As AQR was selling, fund manager Harris Associates LP picked up nearly 20 million shares in Chesapeake, increasing its stake in the shale oil and gas driller to nearly 4%.
Several hedge funds were big buyers into the sector in the second quarter, most notably legendary investor Ray Dalio's Bridgewater Associates LP. The billionaire's hedge fund nearly quintupled its position in Southwestern Energy Co. with a 12.3 million share purchase in the second quarter, giving it a 2.88% stake in the producer.
Index fund manager BlackRock Inc. was another big buyer of shale gas stocks in the quarter, adding to positions it held in CNX Resources Corp., Montage Resources Corp. and the vertically integrated gas company National Fuel Gas Co.
