At the 2014 Sohn Investment Conference, Einhorn was so inspired by a presentation predicting a sharp fall in oil prices that he reviewed his positions and started to sell. At this year's investment conference, he worked to wield influence over oil with some predictions of his own. His target: fracking, of which he is not a big fan.
The billionaire and manager of hedge fund Greenlight Capital tore into the industry in a presentation at the big-time investor conference in New York this week, and he didn't pull any punches.
Einhorn laid out an extensive case against hydraulic fracking companies (the full slide show is 92 pages), arguing they spend too much to generate a profit -- even when oil prices are at their highest. "As oil prices rose, it seemed like the frackers should have been drowning in cash," he said. "But none of them generated excess cash flow, not even when oil was at $100 a barrel. In fact, the opposite was true."
And now that oil prices have dropped, the fracking business is looking even worse in Einhorn's eyes. Frackers have less revenue, meaning they've been forced to cut capital expenditures. Production is no longer growing, but they continue to spend more than they take in. "A business that burns cash and doesn't grow isn't worth anything," Einhorn said.
Hydraulic fracturing -- fracking -- is a controversial way to get oil from shale, a kind of rock. Rock is fractured by a hydraulically pressurized liquid made of water, sand and chemicals. The practice has come under pressure from some who that it has a negative impact on public health and the environment. Einhorn's beef, however, is strictly business. "Profits and losses," he said. "We object to oil fracking because the investment can contaminate portfolio returns."
The billionaire pointed to a number of fracking offenders, including Concho Resources(CXO) - Get Report, Whiting Petroleum(WLL) - Get Report , Continental Resources(CLR) - Get Report and EOG Resources(EOG) - Get Report. He sunk his teeth into Pioneer Resources(PXD) - Get Report, which he called the "Mother-Fracker."
What's so bad about Pioneer? According to Einhorn, it loses about 20 cents of present value for every dollar it invests. It also, like many fracking companies, emphasizes non-traditional financial metrics to measure performance, including EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization and exploration expenses) -- or, as Einhorn describes it, "earnings before a lot of stuff."
Moreover, he contends Pioneer has manipulated its investor materials by maintaining resource estimates that assume $90 oil and $5 natural gas -- and removing clarifications of its assumptions. "It would seem that Pioneer has not adjusted its resource estimates for lower prices," Einhorn said. "Surely, some opportunities that were economic before are not economic now."
Of course, not everyone agrees Pioneer Resources is a bad investment. Stifel Nicolaus analyst Daniel D. Guffey said the firm disagrees with Einhorn "on all counts." Stifel has maintained its buy rating for Pioneer and $195 price target.
But Pioneer's latest earnings report, out Tuesday, doesn't exactly bode well for the company. It reported a $78 million loss for the quarter ending March 31st, or 52 cents per share. A year prior, it reported a $123 million profit and 85 cents in earnings-per-share.
Einhorn may be anti-fracking (at least as an investment), but he's not anti-oil. "I think many people are buying the frackers, because they want to get in on higher oil prices," he said on Monday. "It seems to me that if you want to make that bet, there's a much easier way. Buy oil."
In 2014, Einhorn sold out of oil companies National Oilwell Varco(NOV) - Get Report, Anadarko Petroleum(APC) - Get Report and BP(BP) - Get Report. But if he's saying now that investors should buy oil, maybe soon he'll be getting back in. Either way, he's not saying.
That said, he is invested somewhat in the energy sector right now. According to data from iBillionaire, Einhorn's Greenlight Capital has a 6.5% energy allocation in its public equity portfolio as of the end of the fourth quarter.
His most notable energy stake is in Consol Energy(CNX) - Get Report , which he first bought into in the third quarter of 2014 and in which he upped his stake to 13.2 million shares in the fourth quarter. He addressed the investment in his third quarter letter to Greenlight Capital investors and explained that Consol "is transforming itself into a natural gas company."
"It is investing in shale gas production, while harvesting cash from its operating coal assets and selling its coal reserves," he wrote. "CNX's natural gas production is growing 30% per year."
Einhorn also has a small stake in Oil States International(OIS) - Get Report, which he reduced to 265,000 shares in the fourth quarter of 2014 from a high of 2.7 million shares in the third quarter of 2013.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.