Billionaire Investor Buys Stake in Oil Company

Written By Brianna Panzica

Posted January 16, 2013

Billionaire investor Carl Icahn is known for his activism when it comes to suffering energy companies.

When Chesapeake Energy (NYSE: CHK) was struggling under the direction of CEO Aubrey McClendon, who used company loans for personal business, Icahn bought into the company, removed McClendon as chairman, and replaced a large portion of the board of directors.

He did the same for oil company CVR Energy Inc. (NYSE: CVI) last year. The company has gone on to create a master limited partnership, CVR Refining, LP, which will IPO tomorrow under the symbol “CVRR.”

Now he has something in the works for international drilling service provider Transocean LTD (NYSE: RIG).

Transocean owned the oil rig involved in the massive April 2010 blowout in the Gulf of Mexico that killed 11 people and spilled over 200 million gallons of oil into the waters. Barely two weeks ago, the company reached an agreement with the U.S. government over the spill in which it agreed to pay $1.4 billion.

Shares have fallen over 32% since April 2010. The company has been able to regain more than 36% in the past year, but it still hasn’t recovered completely.

But that’s where Icahn comes in. In an effort to turn things around, the billionaire announced this week that he had purchased 1.56% of the company’s shares, and he is now seeking permission to purchase more than 3% at an estimated $682.1 million.

He has so far been silent on his motives behind the purchase, but analysts have their suspicions. A number suspect the move is the start of an effort to turn Transocean into a master limited partnership, or MLP.

From Bloomberg:

“I would guess he’s going after an MLP because there aren’t a whole lot of other levers to pull,” Joe Hill, an analyst at Tudor Pickering Holt & Co. in Houston said in a telephone interview.

The company has been fairly successful in boosting shares on its own following the spill. Bloomberg analysts expect the company will report earnings of $3.39 billion last year, nearly doubled from 2011.

Transocean has also begun construction on nine oil rigs and sold other rigs for a total of $1.05 billion.

BP (LON: BP), the Deepwater Horizon rig operator, has not been doing as well. In the last year, shares have lost more than 3%. The company is still involved in civil litigations after pleading guilty to manslaughter and agreeing to pay $4.5 billion in a criminal case.

Some analysts don’t think there’s much Icahn can do for Transocean, as the company’s legal settlement has already been made and shares have only been going up. Others are concerned the timing is off.

From Bloomberg:

“A year ago, you could see some incremental pockets of value in squeezing some stuff out, but now some of those have been resolved and you’re left wondering,’What’s left for him to really change?” [Raymond James’ Collin] Gerry said. “Maybe it’s the MLP structure.”

Transocean shares fell immediately following the news, but they closed up 1.48% on Wednesday. Reactions have been mixed, but more details should emerge soon regarding both Icahn’s and Transocean’s intentions.

That’s all for now,

Brianna Panzica

follow basic@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.

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