Hedge fund manager and noted short-seller David Einhorn torched the US fracking industry on Monday, calling the five large companies a bunch of “frack addicts” that drill lots of money-losing holes.
Einhorn, who can sink a stock with a sentence or two, unleashed a verbal barrage at US shale oil explorers, calling the group a “business that burns cash and doesn’t grow anything.”
With fracking the most expensive method of extracting oil, the industry simply can’t withstand lower oil prices, he said at the Sohn Investment Conference in Manhattan on Monday.
Coming under particular scrutiny was Pioneer Natural Resources, which he called the “mother fracker” — and said was “dramatically overvalued.”
Einhorn poured more fuel on the fire by saying Pioneer would barely avoid posting a loss this year.
No sooner were the words out of Einhorn’s mouth than Pioneer’s shares nose-dived — falling from $171.39 at 12:10 p.m. to $163.66 at 12:14 p.m., a drop of 4.5 percent. The stock closed at $168.33, down 1.9 percent in very heavy trading.
The hedgie is famed for his short calls — though several have recently flopped.
Oil companies are valued in part on “proven reserves,” and Pioneer’s existing reserves are currently worth less than $22 per share, Einhorn estimated.
Its proven reserves are based on oil prices of $90 per barrel. But with the price of oil expected to fall in the $60s range next year, the reserves diminish, Einhorn said.
The founder of Greenlight Capital, who successfully shorted Allied Capital and Lehman Brothers, also mentioned EOG Resources, which he called the “father fracker,” Concho Resources, Whiting Petroleum and Continental Resources.
Last year, the industry burned through $20 billion in cash. And even when oil was $100 per barrel, none of the companies had positive cash flow, he said.
Also at the Sohn confab:
- Bond king Jeffrey Gundlach of DoubleLine Capital said he thought interest rates had bottomed — but he also thought that in 2012. He noted that search for yield has led investors into some risky assets and recommended buying Puerto Rican muni bonds because “they have priced in a lot of problems.”
- David Tepper of Appaloosa Management seemed to disagree, noting that there are now four central banks intervening in the markets: those of the US, Japan, Europe and most recently, China. “It’s kind of hard to fight the money. Don’t fight the Fed. And don’t fight four Feds,” he said.
- Leon Cooperman of Omega Advisors agreed with Tepper in forecasting that the US stock market has more room to run.
- Keith Meister of Corvex Capital talked up restaurant holding company Yum! Brands, in which he is one of the top five shareholders. Meister thinks the company should spin off its Chinese operations into a separate company, and the remaining operations should ramp up the franchises, to 97 percent of the total.
- Bill Ackman trumpeted Valeant, which is now 20 percent of his Pershing Square hedge fund portfolio. He called Valeant an “early stage Berkshire,” referring to Warren Buffet’s holding company.