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GuruFocus had the pleasure of hosting a presentation with Ben Cook. Cook is a portfolio manager and member of the investment committee of BP Capital Fund Advisors (Trades, Portfolio) LLC, which acts as a sub-advisor to the Hennessy BP funds. He has managed the Hennessy BP Midstream Fund since 2017 and the Hennessy BP Energy Fund since 2019.

Prior to joining BP Capital, Ben spent many years investing in the oil and gas markets as a portfolio manager at Mariner Investment Group, AG Hill Partners and Opsis Capital Management, as a senior analyst at Carlson Capital and in as an equity research analyst at Raymond James.

Cook received a Bachelor of Arts in Economics from Johns Hopkins University and an MBA in Finance from the University of Texas at Austin. He holds the CFA charter and is a member of the Chartered Financial Analyst Institute.

Watch the full presentation here:

Key points to remember

Cook opened his presentation with a brief history of the company and where it came from with T. Boone Pickens. He went on to explain that the company has a particular focus on energy thanks to a team that has extensive experience in the private and public energy markets. BP’s current size allows it to be agile and respond quickly to changing market conditions.

The company’s strategy takes a long-only approach based on fundamental analysis to create a portfolio of around 40 positions that are actively managed. Its current investment universe covers traditional and renewable energy value chains and includes energy end users.

Looking ahead, Cook believes energy demand will continue to rise, but the primary fuel mix will shift to renewable fuels and natural gas. This increase in demand will be driven by both global population growth and increased prosperity around the world. Renewable energy is expected to grow at the fastest rate, while the use of coal is likely to decline over the next decade.

According to Cook, the demand for energy as the energy mix evolves will be determined by multiple factors, which will complicate the investment process. In many cases, renewable energy companies are experiencing strong growth, but their valuation simply does not allow for safe investments.

The inclusion of end users in the investment universe allows the team to broaden their potential investment opportunities and further capitalize on their knowledge base. Cook went on to explain that there are several categories that they group together different end users. He looked at the impact of China’s crackdown on coal as an example of relative cost recipients to highlight one of those categories.

From there, Cook broke down the company’s investment process into a step-by-step guide to show how they focus on fundamentals to seek good returns at low levels of risk. The team uses several themes they found in their energy transition strategy that helps guide the first step. Once the potential investments have been identified, the team moves on to the assessment and implementation stages. The process ends with monitoring and evaluating the investment to make any necessary adjustments or to maintain their sales discipline.

Actions

Cook then moved on to several examples to highlight the types of investments that can be found by their strategy. The first company he introduced was Comstock Resources Inc. (CRK, Financial). He explained that the growing global demand for natural gas and the operational location of the company have given him considerable advantages. As prices improve, he believes the company will be able to generate excess free cash flow.

The second company Cook used as an example was Freeport-McMoRan Inc. (FCX, Financial). The company offers metals essential to the expansion of renewable energies and the widespread growth of electric mobility vehicles. Overall, the price of copper is expected to maintain good visibility due to a lack of short term solutions for capacity, which makes it more predictable than other energy investments.

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Questions

One of the first questions Cook answered after his presentation asked him to explain some of his favorite investments in renewable energy. He explained that he believes wind and solar are going to be the two main players driving the adoption of renewables in the future.

He explained that solar producers and companies manufacturing wind power components have been identified through their process as good potential investments. He continued to say that producers of materials are essential for the expansion of the renewable energy sector and that there will likely be strong investments as renewables gain market share.

Another question asked Cook for his take on deep water drilling. In short, the team keeps an eye on all aspects of the traditional energy sector to keep up to date and maintain its knowledge.

He continued that they had seen some pockets of success with deep water drilling around the world. Overall, he believes that due to the current state of the market, many companies have moved away from exploration to reduce their volatility risks. As these companies begin to return to their usual ways, they will likely reorganize their exploration efforts and activities like deepwater drilling could prove profitable for investors.

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