The steady increase in the value of pure-play shale gas stock producers elicited little interest from institutional shareholders in the fourth quarter of 2020 beyond some book-balancing by index and pension managers, an analysis of institutional investor activity showed March 5.
BlackRock Inc., TIAA-CREF and Goldman Sachs Asset Management LP were all buyers of the U.S.' number one natural gas producer, EQT Corp., driving the only net increase, on a per share basis, in institutional investment for the group. The remaining exploration and production companies in the group saw small decreases in intuitional interest, according to SEC filings for the fourth quarter.
The lack of appetite for shale gas contrasts with producers' continued gains in the stock market.
For the full year of 2020, the long-beaten-down shale gas stocks soared in value as oil drilling in Texas cratered and removed competing volumes of associated natural gas from the market.
With most of the drillers in the group keeping their pledges to spend less on drilling and generate some free cash, investors are now mulling how to value the E&Ps going forward, according to Goldman Sachs oil and gas analyst Brian Singer. "We believe investors are looking for companies to pursue YARG strategy — Yield at Reasonable Growth — with focus on free cash flow at 0%-5% [production] growth," Goldman said Feb. 21. Investors are also eyeballing GARY — growth at a reasonable yield — Goldman said, but only after oil and gas supply and demand settles down post-pandemic, and only for firms that have good balance sheets and low costs.
"Our preference continues to be for companies with low supply cost that can return incremental cash to shareholders," Goldman said, noting their top pick is EQT. The asset management unit of the investment bank more than doubled the size of its EQT stake in the fourth quarter.
Southwestern Energy Co. saw the largest drop in institutional interest, in terms of the number of shares sold, as hedge fund Zimmer Partners LP sold all of its 25.7 million share stake in the Appalachian driller, a stake it held for only one quarter, according to S&P Global Market Intelligence data. In the third quarter of 2020, when Zimmer reported adding the Southwestern shares, the stock was trading at roughly $2.50/share. Those same shares spent most of the fourth quarter above $3/share.