Why David Einhorn is shorting the ‘mother fracker’ and other oil companies

May 4, 2015, 8:12 PM UTC
Key Speakers At The 20th Annual Sohn Investment Conference
David Einhorn, president of Greenlight Capital Inc., speaks during the 20th Annual Sohn Investment Conference in New York, U.S., on Monday, May 4, 2015. U.S. shale-oil drillers including Pioneer Natural Resources Co. and EOG Resources Inc. plunged after influential money manager Einhorn criticized the large sums of cash they burn through to frack wells. Photographer: Andrew Harrer/Bloomberg via Getty Images
Photograph by Andrew Harrer — Bloomberg via Getty Images

Hedge fund manager David Einhorn thinks oil producers are screwed no matter what happens to crude; Jana Partners’ Barry Rosenstein is bullish on shareholder activism; Keith Meister, founder of Corvex Management, thinks Pizza Hut parent Yum! Brands (YUM) looks delicious; and Omega Advisors CEO Leon Cooperman is feeling good about stocks including Actavis (ACT), Citigroup (C) and General Motors (GM).

Presenters at the 20th annual Sohn Investment Conference, held at New York’s Lincoln Center on Monday, were generally bullish, sharing more than a dozen of their favorite stock picks, as well as a few of their current short bets. But Einhorn’s bearish call on fracking was a memorable highlight.

Einhorn, founder and president of Greenlight Capital, kicked off the event by arguing that a handful of leading American oil companies that rely heavily on fracking were “poised for a fall”—even if the price of crude rebounds from its current depressed prices. “We object to oil fracking because the investment can contaminate portfolio returns,” Einhorn said during his presentation.

Of those short positions, Einhorn described Pioneer Natural Resources (PXD) as the “mother fracker,” saying its oil production and reserves have not kept up with the company’s increased spending on drilling and developing wells. “It’s well loved, well located and well run,” Einhorn said as he introduced the company. Still, he added, “A business that burns cash and doesn’t grow isn’t worth anything,” he said. “That’s like using $50 bills to counterfeit $20s.”

Shares of Pioneer Natural Resources dropped immediately as Einhorn detailed his position; they fell more than 3% during Einhorn’s presentation and were still down almost 2% when the market closed.

Einhorn is also shorting other fracking-dependent oil companies that he believes are overvalued, including Concho Resources (CXO), Whiting Petroleum (WLL), Continental Resources (CLR) and EOG Resources (EOG).

In closing, Einhorn summed up his outlook by alluding to another f-word that sounds similar to “frack” but would not be appropriate to say in public. No matter what the oil price does, “the frackers are—,” Einhorn said, then pursed his lips and smiled mischievously before walking off stage.

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