Study finds oil and gas assets are strong public pension performers

WASHINGTON, DC – Oil and gas stocks in 17 US states' public pension funds had returns that were 3.4 times their share of total assets from 2005 through 2009, a study commissioned by the American Petroleum Institute showed.

The Sonecon LLC study looked at the two largest pension funds in each state and found $51 billion of oil and gas assets represented 4.6% of the average $1,115.6 billion average total in the 2005 to 2009 period. Returns from those oil and gas investments represented 15.7% of total returns during the same period, it indicated.

The study builds on an interim report released by API in April. The 17 states' public pension funds collectively represent more than $1 trillion of assets and covers 48.1% of all US workers who participate in state and local government pension plans, according to Kyle Isakower, API's vice president of regulatory and economic policy.

The new study covered public pension plans in California, Florida, Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Ohio, Pennsylvania, South Carolina, and West Virginia, he said in a June 27 teleconference with reporters.

"Millions of Americans with a 401(k) plan, mutual fund, or pension also rely on the income and capital growth these companies provide for their retirement," Isakower said. "And all Americans benefit from the job creation and economic growth supported by the more than $2 trillion invested in US capital projects over the past decade, including more than $58 billion in low and zero-emitting technologies."

API plans to share the findings with federal government policymakers, he added.

Constantly higher

Robert J. Shapiro, the study's author, said that the research revealed a wide range of investment strategies from state to state. "The only constant was the relatively higher returns of oil and gas stocks," he noted. "At a minimum, their worst performance accounted for about a three times larger share of the total returns than they represented of the total assets."

Shapiro, who is Sonecon's chairman and co-founder as well as US Under-Secretary of Commerce for Economic Affairs from 1997 to 2001, conceded that the study's five-year period was not a full business cycle. It was long enough to reveal performances under starkly different economic conditions, ranging from strength initially to the onset of recession late in 2008 and in 2009, he said. The study period ended in 2009 because that was the latest year data were available, he noted.

"These data hold up. There's no case where the basic result changes, only the dimensions," Shapiro maintained. "What's basic here is that in this era, well-run companies which produce commodities with global demand do very well under all economic conditions. It's an important finding for people investing pensions of millions of retired state and local government workers. We saw a range of decisions across these states, and hope these pension fund managers take the findings to heart."

He said that integrated oil and gas companies represented an estimated 60% of that index in the study, with other investments in independent producers, service and supply companies, transportation, independent refiners, and some coal and other forms of energy.

"The profitability of any industry dealing in a global commodity depends on demand for that commodity. We're seeing stock markets responding to strong global energy demand," Shapiro said.

"It's interesting that US oil companies, which we think of as very large, aren't as big as state-owned companies in OPEC and other oil-producing countries," he added. "One advantage the US has is that oil companies here are private enterprises, and operate more efficiently, especially in comparison to countries like Russia."

Nick Snow is Washington editor for Oil & Gas Journal and Oil & Gas Financial Journal. He can be reached at [email protected].

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