Einhorn targets US 'frack addicts'

David Einhorn, the short seller who bet against Lehman Brothers and Green Mountain Coffee, has turned his attention to US oil exploration companies, labelling them "frack addicts" who are wasting money on uneconomic wells.

Mr Einhorn picked out five oil companies he said were making capital investments that would never pay off, making the biggest splash on a day of presentations from hedge fund managers at the Ira Sohn investment conference in New York.

Shares in several of the oil companies - led by Pioneer Natural Resources, which Mr Einhorn labelled "the motherfracker" - tumbled in the minutes after the presentation.

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Equity investors had been sold on a dream of expansion under the US shale oil revolution, Mr Einhorn said, but companies are looking at a negative return on their capital expenditure in the current environment. For many, that was true even when oil was at $100 per barrel.

"Depletion gets ignored because it is not a cash item, and capex gets ignored because it is funding future growth," he argued. "When someone doesn't want you to look at traditional metrics, it is a good time to look at traditional metrics."

As well as Pioneer, the companies singled out in the presentation on Monday were EOG Resources, Whiting Petroleum, Continental Resources and Concho Resources.

Mr Einhorn - who made his reputation shorting Allied Capital, a mid-cap lender in the US, from 2002 - likened the companies to St Joe, a Florida landowner that could not develop its land profitably even at the peak of the housing bubble.

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Equity investors who are buying oil exploration and production companies as a bet on a rebound in the oil price should simply buy oil, Mr Einhorn said.

The annual Ira Sohn conference, which raises money for cancer research, has become a venue for hedge fund managers and other investors to air their best new trading ideas.

Keith Meister, founder of Corvex, said that he had invested $1.5bn in Yum Brands and would push the Kentucky Fried Chicken and Pizza Hut owner to split off its Chinese operations, becoming the second activist in a week to emerge on the shareholder register at Yum.

Leon Cooperman tipped stocks including Citigroup and General Motors, while Jana Partners founder Barry Rosenstein widened his criticism of strategy at Qualcomm, where he has a $2bn stake.

Bill Ackman tipped Valeant Pharmaceuticals, in which his fund Pershing Square has a 6 per cent stake, as a "platform company" and an "early-stage Berkshire Hathaway" ready to do ambitious acquisitions.

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