Redemptions are stacking up for famed oil investor T. Boone Pickens of BP Capital . Since the summer, 65% of investors in BP Capital have pulled their money out, fearing an additional collapse in oil and natural gas prices.

Pickens, who has made an estimated $3 billion in the oil markets, was recently quoted as saying, “ I don’t think you will stay at that level very long because you are going to start shutting down a lot of projects.”

Despite the short-term movements in the oil market, the fact of the matter is that in the U.S., on average, a single American consumes 25 barrels of oil per year. Compare this with the fact that China and India consume only two barrels of oil per year per person. As time goes on and these less-developed nations improve their standards of living and internal economic efficiencies, the spot price of crude is like to skyrocket.

Let’s see how T. Boone is playing oil now.

The top holding in BP Capital is Occidental Petroleum (OXY), which represents a little over 11% of the firm's total capital.

Occidental operates in three businesses. Oil and gas has a stable production flow with proven long-lived reserves and high capital efficiency, and it generates large amounts of free cash flow. The Middle East/North Africa business is Occidental's main driver of growth, with promising reserves and high project returns. And third, there's the midstream and downstream business, which includes refining and various chemical solutions.

Occidental's core earnings from the first quarter of 2008 came in at $1.8 billion vs. $788 million in the same quarter in 2007, while core earnings per share were up 137% to $2.20 from 93 cents. Occidental has increase the firm’s dividend by 14.7% since 2002, from 50 cents per share to more than $1.15 in 2008.

Occidental trades with a forward P/E of 11.03 and EV/EBITDA of 2.97. It has quarterly revenue growth, an important measure when looking at large oil conglomerates, of 45.80%, vs. the industry average of 17.8%, with higher operating margins of 51.2% vs. the industry average of 37.93%.

The second-largest position in BP Capital is Suncor Energy (SU), which represents 8.3% of the firm’s total capital.

Suncor is the largest producer of oil sands, representing about 30% of total production. Suncor owns the rights to 15.5 billion barrels of oil, mostly in the Canadian tar sands in northern Canada. Current production is 235,000 barrels per day, with projection goals of 300,000 barrels per day in 2009, 350,000 in 2010, 400,000 in 2011, 430,000 in 2012, and 550,000 in 2013. From 2004 to 2007, net earnings went from $1.076 billion to $2.832 billion, while return on assets stayed above 15% each year.

Suncor, which is highly leveraged to the spot price of crude, is down about 80% or so for the year, as the lower the spot price of oil goes, the more the Canadian tar sands lose their financial appeal.

Suncor trades with a forward P/E of 15.10 and EV/EBITDA of 5.673.

The third-largest position in BP Capital is shares of Schlumberger (SLB), which represent 7.7% of the firm’s total capital. Schlumberger is one of the world’s largest oil service companies. It trades with a forward P/E of 9.4, which is almost two times lower than its historical P/E level of the mid-to-upper teens. Quarterly revenue growth is slightly above the industry average at 22.5%, with operating margins of 26.1%, vs. 17.1%.

T. Boone Pickens also has large positions in Devon Energy (DVN), and XTO Energy (XTO). For more ideas, check out the BP Capital portfolio at Stockpickr.com.



Posted on Dec. 19, 2008