According to (subscription required) the Wall Street Journal, a wave of consolidation in the oil industry could be in the cards given high crude prices that show few signs of letting up.
The Journal reports that, "Private-equity firms, for instance, see the promise of profitable investments. State-owned oil companies from booming China and India are more willing to make big outlays for the assets they crave. Oil companies from producing countries are flush with cash and looking to expand. The big international companies are adjusting their portfolios to focus on their most profitable assets and to buy the advanced technology they need to keep an edge amid growing competition. And small and midsize oil concerns are more likely to pair up to survive."
The interest of private equity is a strong indication that the sector is undervalued. Generally, private equity firms aren't interested in speculating on future commodity prices, so they must think the stocks are undervalued based on current fundamentals.
For most investors, betting on individual oil and gas companies is too risky. If you agree with the notion that a wave of consolidation in the industry is likely to drive prices up, you may want to look at the S&P Oil & Gas Exploration & Production SPDR (AMEX: XOP). With an expense ratio of just 0.35%, it's an inexpensive way to profit from a bull market there.
Consolidation on the way in the energy sector?
Recent Posts
- Private equity tries to feast on Lyondell blow-up (1/07/2009)
- New Year's resolution for VCs: Survival (1/05/2009)
BloggingBuyouts is provided for informational purposes only. Nothing on the service is intended to provide personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. You are solely responsible for any investment decisions that you make. The contributors who provide the content of BloggingBuyouts may, from time to time, hold positions in the securities discussed at the time of writing and they may trade for their own accounts. Such holdings will be disclosed at the time of writing. By using the site, you agree to abide to BloggingBuyouts' Terms of Use.
