David Einhorn: U.S. Oil Drillers 'Dramatically Overvalued'

In a presentation at the Sohn Conference in New York on Monday, Greenlight Capital manager David Einhorn gave a humorous but extremely critical presentation about U.S. oil drillers. Einhorn specifically singled out Pioneer Natural Resources Co PXD as a driller with a massively overvalued share price based on the fundamentals of its business.

Are oil drilling stocks worthless?
The major theme of Einhorn’s presentation was that oil drillers spend too much money on drilling, regardless of the price of oil. Historically, as oil prices increased above $100 per barrel, drillers spend even more money on drilling.

Now that oil prices have fallen to about half their previous levels in the past year, Einhorn believes many drillers will continue to hemorrhage cash indefinitely. “A business that burns cash and doesn’t grow isn’t worth anything,” Einhorn concluded bluntly.

Why Pioneer?
Einhorn picked on Pioneer, calling it the “mother fracker” and pointing out that the company loses 20 cents for every dollar it spends on drilling. He also called out the company for continuing to use assumptions of $90 per barrel oil prices and $5/MMBTU gas prices for its resource estimates in its investor presentation less than a month ago.

Einhorn suggested a value of $78 per share for Pioneer, arguing that the stock would be “dramatically overvalued” even if oil were to return to peak pricing.

“Father fracker” and other names
In addition to referring to EOG Resources Inc EOG as the “father fracker,” Einhorn also mentioned Concho Resources Inc CXO, Whiting Petroleum Corp WLL, and Continental Resources Inc CLR when referring to the types of companies to which his presentation “generally applies.”

Most of the names mentioned traded flat on Monday, however shares of Pioneer fell by 1.9 percent.