How Oakmark Is Tapping Into Energy Opportunities
Bill Nygren says Oakmark took small positions in two well-managed firms--Chesapeake and Apache--that could see significant upside when prices bounce back.
Jeff Ptak: Let's touch briefly on energy. I think I've read that your long-term crude oil forecast, if you had to set a price for it, the equilibrium is maybe $70 a barrel, if I'm not mistaken. Obviously, we had crude oil prices that were trading well below that through portions of last year and remain below that level today. It looks like you nibbled, added Chesapeake (CHK), built up your position in Apache (APA), if I'm not mistaken. One question is why didn't you do more? Did you not find more bountiful value within the oil patch or the energy sector more generally?
Bill Nygren: I think one reason to have not done more is the sensitivity of the two names that we purchased to oil and gas prices is significantly higher than most companies in the S&P 500. So, our way of thinking about it was that we could invest a relatively small percentage of the portfolio in these names and have a very significant upside if prices return to what we think long-term market clearing prices need to be.
Jeffrey Ptak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.