If you’d bought shares of Exxon Mobil Corp. (NYSE: XOM) when it was created back in 1998 and held them until today, you would’ve seen your investment grow 136%.
I was pondering this tasty fact a couple of days ago when I heard that Shell (NYSE: RDS) announced the purchase of BG Group Plc. (OTC: BRGYY).
BG Group is a British gas company with 20 locations throughout the world.
With the stock price down 19% compared to this time last year, Shell smelled blood and proposed a $70 billion deal that would give it control of lucrative natural gas projects without it having to do any expensive wildcatting.
Shareholders of BG saw the stock opened 42% higher as Shell said it would pay a 50% premium on April 7th share prices.
If you owned the stock already, congratulations! If not, then no need to worry — there are plenty of gains in the pipeline for oil and gas…
Especially on the tails of this buyout, which provides a guideline for the value of assets like oil, gas, and LNG in the low commodity price environment we have now.
Liquefied natural gas interests me specifically because it’s become the new hot commodity for several energy companies that wish to bring cheap fuel to areas of high demand.
It’s clear Shell saw the opportunity to buy BG not just as a smart purchase because the price was low but also as an attempt to transition into the future.
You see, North Sea oil production is in a state of serious decline…
And as major energy consumers like the United States and China transition to natural gas for power production, it’ll be up to companies like BG Group (and now Shell) to produce and ship the fuel all over the world.
Of course, the question for you and me is whether this deal will pay off like the Exxon Mobil merger or if investors should spend their money elsewhere…
M&A Shift
I wouldn’t be surprised if we saw other major energy companies make similar moves for their asset portfolios.
Bear markets like this are when the big firms — think Shell, Exxon, BP, Chevron, and the like — snap up companies struggling under the weight of revolving credit facilities.
Now, with oil prices at a rather stable bottom point since January, it’s only a matter of time before we see more deals spring forth.
Except the M&A deals are shifting objectives…
It’s funny to talk about it now, but this time last year, every CEO and his brother was scrambling to get out of natural gas.
If you know anything about what I do as an editor for Energy and Capital, you know I spend a lot of time reading through SEC filings, listening to conference calls, and sifting through presentations and CEO interviews.
I do this because it’s important to discover what companies do on a regular basis — and this is one of the many ways I find out.
If you look back to last year’s Q1 reporting, everyone who wasn’t already in liquids plays announced a transition from liquids to natural gas.
The reasons were obvious back then: Oil was over $100 per barrel, natural gas (in the U.S. at least) was under $4 per BTU, and energy companies like profitable fossil fuels.
But now (and whenever oil is low) it’s different…
Big Oil company Shell is spending $70 billion for a head start in natural gas production. Exxon bought XTO Energy — another gas producer — for $31 billion back in 2009.
If you wait a few months, you’ll likely see another big move into natural gas by a major producer.
But I wouldn’t ditch oil altogether for natural gas or LNG just yet…
Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
Saudi Looks to Improve Prices
A piece of news you may have missed amid the clamor over the Shell and BG deal involved our old friend Saudi Arabia.
Saudi Oil minister Ali al-Naimi said at a conference on Tuesday that the Saudis are ready for oil prices to return to profitable levels.
Of course, the Saudis won’t do this on their own — they’ll require help from non-OPEC producers like the U.S., Russia, and Mexico.
Here’s a statement from Naimi:
The kingdom is still ready to help bring back stability to the market and improve prices in a reasonable and suitable manner, but with the participation of the main producing and exporting countries and based on clear principles and high transparency, so the kingdom or the Gulf countries or OPEC countries do not shoulder that alone.
Essentially, OPEC and Saudi Arabia want broader control of global oil markets, including the shale producers in the United States who will be reluctant to fall under the thumb of the Kingdom.
Still, though, if oil prices languish too low for too long, the big producers eager to stock up on lucrative tight oil and gas assets will eat these shale firms alive.
So there may be some basic cooperation or limits on exports — should the U.S. government allow them — and oil prices will surge higher in the third quarter or fourth quarter at the latest.
That’s why, right now, it’s imperative that investors stake their claims on oil and gas investments that will grow over the next eight months.
Will it be Shell? Maybe, but not as much as you and I would want.
And as you can see below, the gains for BG Group are long gone…
Instead, I urge you to look at this investment presentation. It offers a way for investors to make money on oil and gas in the Bakken without exposing their portfolios to risky drillers.
Once oil prices rise in the second half of the year, this company will see incredible gains, too.
Until next time,
Keith Kohl
Check us out on YouTube!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.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.
