Oaktree Capital Management revealed earlier this week it boosted its stake in Sitio Royalties Corp. (STR, Financial) by 19.47%.
The alternative asset management firm headquartered in Los Angeles, which was founded by renowned guru Howard Marks (Trades, Portfolio) and several fellow investors in 1995, focuses on delivering superior results while observing its six-tenet investment philosophy of risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing. Specializing in credit strategies, the firm also invests in high-yield bonds, convertible securities, distressed debt, real estate, control investments and listed equities.
According to GuruFocus Real-Time Picks, a Premium feature based on 13D, 13G and Form 4 filings, the firm invested in 2.52 million shares of the Denver-based energy royalties company on June 14. The trade had an impact of 0.82% on the equity portfolio. The stock traded for an average price of $26.52 per share on the day of the transaction.
Oaktree now holds 15.45 million shares total, which account for 5.04% of the equity portfolio. The 13F filing for the first quarter showed it was the sixth-largest holding. GuruFocus data shows the firm has lost an estimated 3.88% on the investment so far.
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
About Sitio Royalties
Founded in 2016, Sitio Royalties focuses on acquiring high-quality oil and gas mineral and royalty interests in the Permian Basin, Anadarko Basin, Williston Basin, DJ Basin and Eagle Ford Shale.
Valuation
While the market as a whole is higher for the year so far despite high inflation, rising interest rates and other geopolitical and macroeconomic factors, the energy sector is underperforming. Year to date, it has posted a -6.15% return.
Yielding a $2.01 billion market cap, shares of Sitio Royalties traded around $24.98 on Monday with a price-earnings ratio of 18.10, a price-book ratio of 1.18 and a price-sales ratio of 1.41.
Although the company does not have enough of a history to have a GF Value Line, the stock has fallen nearly 15% since its initial public offering. Year to date, it is down 9.29%.
At 24 out of 100, the GF Score warns the company has poor performance potential. Since it only received moderate ratings for financial strength and profitability, however, its prospects are not accurately reflected.
Financial review
Sitio Royalties released its first-quarter financial results on May 9.
For the three months ended March 31, the company posted net income of $47.7 million, or earnings of 28 cents per share, on $150.83 million in revenue. Both figures were up from the prior-year quarter.
The company’s performance was driven by record high average quarterly production volume of 34,440 barrels of oil equivalent per day as well as the acquisition of Brigham Minerals’ assets.
In a statement, CEO Chris Conoscenti commented on the company’s performance as well as provided an update on its merger and acquisitions efforts.
“Producer activity on our assets continues to be steady, with average production of 34,440 Boe/d in the first quarter, which is in-line with Sitio’s pro forma production of 34,424 Boe/d in the fourth quarter of 2022,” he said. “We evaluated approximately 50,000 net royalty acres for acquisition in the first quarter of 2023, but we did not find any opportunities that met our returns criteria. This was the first quarter in over two years that we haven't announced or closed an acquisition. Instead, we focused on strengthening the balance sheet by reducing long-term debt by approximately $34 million and continuing to improve our internal efficiencies."
Looking ahead, Sitio expects production in the range of 34,000 to 37,000 barrels of oil equivalent per day for the full year.
Guru interest
Marks’ firm has the largest stake in Sitio Royalties with 19.16% of its outstanding shares.
As of the end of the first quarter, 13F filings show Murray Stahl (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) also had positions in the stock.
Over the past year, the guru buys volume has outpaced the volume of sells.
Portfolio composition
Oaktree's $8.06 billion equity portfolio, which the 13F filing showed was composed of 174 stocks as of March 31, is most heavily invested in the energy sector, followed by smaller exposures to the financial services, industrials and consumer cyclical spaces.
Other energy stocks Marks’ firm held as of the end of the first quarter included TORM PLC (TRMD, Financial), Chesapeake Energy Corp. (CHK, Financial), Weatherford International PLC (WFRD, Financial), Petroleo Brasileiro SA Petrobas (PBR, Financial) and Vista Energy SAB de CV (VIST, Financial). See all of its holdings here.
