A Better Way to Cash in on the Great Oil Reset
Although the world around us is starting to open up again, you’re probably still hungover from the COVID summer.
You might have missed a huge move by Big Oil.
In July, Chevron scooped up Noble Energy for $13 billion with debt included.
During bear markets, only the strong drillers survive.
And you better believe the sharks have been circling.
You can bet more buyouts are likely on the way, too.
Keep in mind, this is more than a COVID issue.
Before the world became fixated on this pandemic, a barrel of oil was still trading for less than $60 a pop — few drillers in the shale patch were profitable at those prices.
Don’t even get me started on the havoc low oil prices have wreaked on costlier oil resources in Venezuela.
But hey, when times are booming, it’s easy to pick winners in the oil sector.
After prices crashed in 2008, it became a running joke that you could close your eyes, blindly throw a dart at a wall, and strike black gold.
Do that enough times, and it starts to become routine. The investment herd rushes in headfirst as usual, and it’s hard not to get swept up in the fervor.
You see, they start to forget about the leaner times.
For them, it doesn’t matter if their company can’t turn a profit.
So when the market hits bottom — which should be fairly evident when WTI prices fall into negative territory — the sharks begin to circle.
That’s precisely what we saw in July.
Noble wasn’t making money in a sub-$40-per-barrel-of-oil price environment, and Chevron pounced.
It wasn’t the first big buyout in recent memory, either.
Perhaps you remember the $38 billion that Occidental Petroleum shelled out for Anadarko in summer 2019?
And it should be no secret why Big Oil is targeting the Permian Basin — it accounts for over half of the United States' tight oil output!
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Now, you and I both know there are a multitude of catalysts that will make Big Oil jump.
Sometimes, as in the case of Noble, it sees a chance to shore up 92,000 acres in the Delaware Basin portion of the Permian.
Other times, it’ll come across a little-known company that’s sitting on top of a massive amount of crude oil that’s almost too good to be true.
Close your eyes and pretend you’re sitting in Exxon’s headquarters.
Look around you, and you might see a bit of chaos.
You’ll also see a huge opportunity.
Last month, your company was booted off the Dow Jones.
You realize that you were quite late to the shale party and were forced to pay a premium for your Permian acreage. Remember, Exxon had to pay $41 billion for XTO Energy back in 2014.
Yet more bullish signs are emerging as crude oil rallies back to roughly $40 per barrel.
And even though the summer driving season is now officially behind us, you’re looking beyond just a few weeks and months.
Now open your eyes.
The world is starting to get hungry for oil again.
China has been buying as much oil as it can recently, with imports rising to a record 13 million barrels per day this summer.
Those imports may have fallen off slightly since then, but one interesting twist is that China is warming up to U.S. tight oil, with 20 million barrels of crude booked for transport in August and September.
If you’re Big Oil, you want to go shopping.
For companies like Exxon, imagine looking next door to your operations and seeing a tiny $25 million company gleefully sitting on 3.7 billion barrels of Texas tea.
Jumping on that kind of deal would make any CEO grin ear to ear.
That’s exactly what we’ve uncovered.
As we transition into a post-COVID society, the world will look to North America to drink its fill of crude oil.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
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