Clean Energy Fuels Corp. (NASDAQ: CLNE) is as pro-American energy as anyone you'll find. He's also been a staunch supporter of natural gas as a viable transportation fuel, particularly for commercial users, since it's generally cheaper than diesel and gasoline and generates fewer tailpipe emissions, and North America has huge reserves that can help reduce our dependence on oil, much of which is imported from countries that are, to use Pickens' own words, "not friendly" to the U.S.
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Pickens has advocated for natural gas vehicles for decades. Image source: T. Boone Pickens.
And since founding Clean Energy in 1997 (it was taken public in 2007), Pickens has been personally invested in natural gas for transportation. And with oil prices bouncing back on OPEC's huge news that it will cut production by 1.2 million barrels per day -- and word that non-OPEC oil nations will cut another half-million barrels per day -- the company's prospects seem brighter than they have in years.
So why has Pickens sold 1.98 million shares since the beginning of December? As the old saying goes, "there are a million reasons to sell, but only one reason to buy." This is particularly true when you consider Pickens' current situation, age, and a very important disclosure found in Clean Energy's own SEC filings, that likely explains Pickens' latest move.
That SEC filing and what it means
From Clean Energy Fuels' most recent 10-Q:
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As ofSeptember30, 2016,15,941,860shares of our common stock held by our co-founder and board member T. Boone Pickens were pledged as security for loans made to Mr.Pickens. We are not a party to these loans. If the price of our common stock declines, Mr.Pickens may be forced to provide additional collateral for the loans or to sell shares of our common stock in order to remain within the margin limitations imposed under the terms of the loans.
But this isn't a new disclosure. Pickens has used his stake in Clean Energy as collateral for loans as far back as the second quarter of 2009.For many years, Pickens' shares in Clean Energy Fuels have been collateral for bank loans, and this has been disclosed in the company's quarterly 10-Q and annual 10-K SEC filings, pointing out the risk of a margin call -- or a forced sell of part of Pickens' stake to cover the loan -- having a negative impact on the company's stock price.
Considering that Clean Energy's stock price is likely far below what it was when Pickens entered into the loan or loans they are pledged as collateral for, it's not unreasonable to guess that Pickens had no choice but to sell.
But that may not be the reason
Pickens' net worth, which has almost entirely been tied to the value of oil and gas assets, not to mention a major wind energy project which Pickens says he "lost his ass" on, has plummeted over the past eight years. According to most estimates, his net worth is now around $500 million, down from maybe $4 billion at the peak.
Much of Pickens' wealth is tied to income-producing assets like oil production. Image source: Jason Hall.
And while $500 million is an unfathomable amount of wealth for most of us, much of Pickens' fortune is in large assets such as real estate that can't be quickly liquidated to raise cash. He also has assets which generate income, such as interests in oil and gas production, that it might make no sense to sell off to raise capital today; "Robbing Peter to pay Paul," as the saying goes. Furthermore, he also has historically had a lot of his capital tied up in energy futures contracts which may make no sense to sell now.
Considering that Clean Energy doesn't pay a dividend and isn't likely to pay one anytime soon, Pickens' options may have been limited to his stake in Clean Energy, despite his still immense net worth.
So there are two things that have likely happened:
- Pickens has been forced to sell shares to meet the terms of the loan(s) his shares were collateral for.
- Pickens wanted to raise cash for something else, and his Clean Energy shares were the simplest asset to liquidate.
All of that, to point out that we don't know Pickens' motivations.But we do know that Pickens is still Clean Energy Fuels' largest shareholder, and a member of the board of directors.
We also know that Pickens announced in 2015 that he would periodically sell shares in the company. As of September 7, 2015, Pickens owned 18.1 million shares; as of December 13, 2016, Pickens owned just under 13 million shares. In other words, Pickens isn't unloading shares quickly, but has sold of a lot of his stake in the past year.
At the same time, Pickens isn't a young man. He's in his 80s, and while in very good health and still reportedly going to the office at B.P. Capital daily, his priorities are likely more short-term than many investors out there.
Don't project your situation on someone else's actions
If there's one sure-fire way to make bad investing decisions, it's by projecting your personal investing situation onto the actions someone else takes, particularly an insider or large investor. The reality is, the motivations and goals we each have are slightly different, and focusing on what others are doing will distract away from what the business itself is doing.
And in the case of Clean Energy Fuels, making decisions based on Pickens' selling could be exactly the wrong move. The company has slashed its debt and operating expenses over the past year and continued to grow fuel volumes, putting it in position to generate positive cash flows and earnings going forward. At the same time, global oil producers have committed to major cuts, which should send oil prices higher; a very good thing for Clean Energy's future growth prospects.
If you're only following Pickens' moves, you'd miss how the company is stronger today, and how its prospects look better than they were when Pickens owned far more shares.
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Jason Hall owns shares of Clean Energy Fuels. Jason Hall has the following options: long January 2017 $5 calls on Clean Energy Fuels and long January 2017 $3 calls on Clean Energy Fuels. The Motley Fool owns shares of and recommends Clean Energy Fuels. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.