Hedge fund managers bought into oil at the height of the Gulf of Mexico spill, documents reveal

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Written by Ray Clancy

Top hedge fund managers have been bargain hunting in the oil patch in the second quarter of the year, buying shares whose prices had tumbled after BP’s Gulf of Mexico well disaster and in the face of lower oil prices, it has emerged.

Top managers including Carl Icahn, Eric Mindich and Dinakar Singh, whose stock picks are closely watched in investment circles, added energy stocks to their holdings even as billions of gallons of oil gushed into the Gulf, according to quarterly securities reports.

Others stocking up on energy shares included David Einhorn, former Fidelity Investments star Jeff Vinik, the $22 billion Boston-based fund Adage Capital and SAC Capital Advisors LP, the hedge fund run by Steven Cohen.

Energy stocks ranked among the worst performers during a quarter that also featured the still unexplained stock market flash crash on May 6 and new jitters about a double dip recession developing in the US.

Still, top fund managers staked out the sector much like they did with financial companies earlier in the year. For investors bold enough to jump into the energy sector while the Gulf oil spill was gushing and doubts swirled about the future of US offshore oil drilling, the payoff has been swift and handsome.

In particular, BP’s shares are up 28% since the end of the second quarter, after losing roughly half their value in the weeks that followed the explosion and sinking of the Deepwater Horizon drilling platform in the Gulf of Mexico in late April.

After building his energy holdings slowly at the start of the year, billionaire Carl Icahn picked up the pace, committing nearly $1 billion to the sector during the quarter.

I can also picked up shares of oil and gas producer Anadarko Petroleum and offshore drilling specialist Ensco’s sponsored American Depository Receipts, according to documents submitted to the Securities and Exchange Commission.

Other companies that attracted interest from one or more hedge funds included drilling services specialist Baker Hughes and oil services company Halliburton.

Mindich, whose skills at Goldman Sachs helped him raise a record $3 billion when he started his fund in 2004, bought both shares and call options in BP, and a variety of other companies in the sector including Diamond Offshore Drilling, Forest Oil, Marathon Oil and Suncor Energy.

Einhorn’s Greenlight Capital bought just over 5% of Ensco’s shares. In a letter to investors last month, Einhorn said the Gulf oil spill ‘should not materially impact Ensco’s long term potential’.

Einhorn and John Paulson of the Paulson Funds were among the managers taking larger stakes in drugmaker Pfizer. Paulson also raised a few eyebrows by picking up one million shares of Goldman Sachs Group in the second quarter.