• April 26, 2019

ELAM: Merger Fever Hits the Oil Patch - Odessa American: Dennis Elam Column

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ELAM: Merger Fever Hits the Oil Patch

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Posted: Sunday, April 14, 2019 8:00 am

Anadarko stock rose 31% after Chevron offered $60.95 per share in stock and cash. The deal gives the second biggest U.S. energy company a boost in shale oil production as well as natural gas and offshore deep-water.

CNBC Nightly Business Report

This column has noted the laggard action of the second tier companies like Anadarko and Apache. That is now changing. Why is it happening now?

Positive social mood is inclusionary. Positive feelings about investing have led both the stock and energy markets higher. Mergers always happen in rising markets, often near the top or final rung of the ladder. A recent headline in the WSJ noted that investors were jumping into stocks for fear of ‘missing out’ on higher prices. That was not the headline last December 24 when the DJIA declined 600 points in one day.

Companies can catch the same I don’t want to miss out fever as well. This makes firms like Apache with its rich find in the Davis Mountains almost certainly in play.

In any industry it is always an individual that innovates. Henry Ford and Karl Benz were both inventing the internal combustion engine at the same time. Edison saw the future of electric generation, Bill Gates saw the future of software when giants like IBM assumed all the money would be made in hardware.

Exxon and Chevron, like IBM in the example, are late to the party. So it makes sense to buy oil in the ground from a known entity rather than start from scratch.

The DJIA is up about 250 points. That and merger mania has finally pushed the XLE Energy ETF over its 200 day moving average. Energy Service XES still badly lags only up one penny today and well below its 200 moving average, $12.04 versus $13.46.

An oversupply of natural gas coupled with warmer weather has beaten prices down from $4.80 last December to $23.66. This has me wondering about the billion dollar LNG export projects underway in Corpus Christi. The Far East is not needing any more LNG at the moment. But shares of Cheniere LNG are up 2% today to $68.47.

President Trump continues to be stymied in his attempts to build more pipelines. Environmentalists run to a sympathetic judge to block attempts to complete these projects.

Here is our bottom line. Expect stock and energy prices to continue their upward trend into May. We speculated last week tech would lead and it is. The seasonal tendency is for stocks to top and then slump during the summer. So far that expectation looks to hold true once again.

Odessa, TX

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