Oil Investors Buy Shale Again

A couple of weeks ago, I wrote you about the Shell buyout of British gas company BG Group.

When that $70 billion deal was announced in April, I knew it would only be a matter of time before more big companies started buying up slices of the oil and natural gas patch.

With both commodities at extremely low price points, major firms flush with cash know that the smaller, debt-ridden players can only hang on for so long before they go belly-up.

So the big guys — Shell, Exxon, Total, etc. — all hold out cash reserves and snap up players, like BG Group in Shell’s case, for a seriously discounted rate.

This is especially true for smaller companies in shale formations where the debt burden is much higher and the profit margins are much tighter.

And after oil dropped back to $50 per barrel earlier this month, it took just a few days for the deals to start up again…

On Wednesday, WPX Energy Inc. (NYSE: WPX) announced it would acquire a small, privately held company in the Permian Basin. The company, RKI Exploration and Production, gives WPX a stronger footing in the Permian with an extra 22,000 boe per day and 92,000 more acres to explore.

This $2.75 billion acquisition nearly doubles WPX’s enterprise value and secures its place within a core section of acreage in the most prolific shale play.

Of course, this deal was small change compared to the MarkWest Energy Partners (NYSE: MWE) and MPLX (NYSE: MPLX) merger.

At $15.8 billion, this deal, announced earlier this week, is the largest of its kind since Shell’s BG Group acquisition.

MarkWest will become a wholly owned subsidiary of MPLX, and investors will receive 1.09 shares of MPLX and $3.37 for every MarkWest stock owned. The combined companies will be the fourth-largest MLP on the market and will have a $20 billion market capitalization.

The deals are happening, and they won’t stop until oil goes up. It’s time for investors to position themselves to make money.

Deal Machine, Big Gains

Companies like Shell, MPLX, and WPX Energy are so willing to drop billions of dollars right now because they know their investments will probably be worth double in short order.

Oil and natural gas are commodities, and commodities always go up. You can’t make more oil; you can only drill for it until it’s gone.

That’s why, with every barrel burned, the rest of the crude in the ground becomes more valuable.

So when oil prices are low, companies, in true capitalist fashion, go on buying sprees for small players saddled with debt.

The chart above from Bloomberg shows us two crucial bits of information…

The first is that the most valuable and most frequent buyout deals happen when oil and gas prices are low. So in the fall of 2008, oil was tanking from nearly $130 per barrel to $40, while gas was cut in half from $13 to about $7 per BTU.

So once again, oil and natural gas are priced too cheaply for big firms to ignore the smaller players they can buy to boost their value.

As the chart above shows, oil (black line) and natural gas (green line) are trading well below where they were a year ago.

It’s only a matter of timing. And that brings me to the second crucial bit of information: In any given year, the biggest time for deals is the third quarter.

With commodities low, the third quarter coming, and major energy companies ready to spring for debt-ridden shale players, investors who have enough liquidity are in an incredible position.

Three Likely Buyout Candidates

As I said a few weeks ago and earlier in this piece, shale is on sale… and at a steep discount.

MPLX knows that. So do Shell and WPX. But the real winners here can and should be investors like you.

I mean, if you had owned any of the companies that have been bought out so far this year, you would’ve made some decent money. If you had owned the companies that did the buying, you’d be on your way to long-term profits.

Of course, the fastest and most exciting way to make money on buyouts is to position yourself in small players with large amounts of undeveloped acreage. These players have leverage and can sell for huge premiums because of the territory they control.

I’ve found three players that have significant assets in the Permian Basin, Eagle Ford, and Marcellus shales, and all are primed for either a buyout or a big jump in share price when oil and gas return to reasonable levels.

Now, some of my readers already know about these companies, but with the third quarter coming and the biggest deals on the way, I wanted to tell you about a special offer.

Right now and for a limited time, I’m giving away the report in which I divulge these three likely buyout candidates for a 90% discount.

A quick $5 fee, and you’ll have access to three companies that could be bought out in the third quarter for a huge premium — perhaps as high as 574%.

You can get all of the details here.

Until next time,

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.

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