I just started researching TXCO as it was included on the MSN Money Stock Scouter 20 for 2005 along with Magnum Hunter, Tesoro, Hornbeck Offhore, XTO and LL&E Royaklty Trust in the energy sector See: http:www.moneycentral.msn.com/content/P102148.asp On December 15 they hired Raymond James to "explore alternatives" (i.e. sell the company). While I would usually see this as good news and start crunching the numbers, my initial reaction this time was "uh-oh" as Magnum Hunter popped into my mind. I am a current Magnum Hunter shareholder and while I do feel that the assets are worth far more than the current market price, it gives me pause if others are trying to get out the door at the same time. Is this a sign of a top or am I just being paranoid? As they say, just because you're paranoid doen't mean that they're not really after you. Does anybody know of any similar E&P companies that are "exploring alternatives"? Maybe they should stick to exploring for gas and oil instead of "exploring alternatives".
A wave of buyouts is expected in the E&P arena. Some announcements might come unexpectedly, like NBL buying POG, while others might arise from the "Strategic Alternatives" pursuit.
Look at what happened to the defense industry over the past decade or so. Boeing acquired McDonnell Douglas. Northrop acquired Grumman. Lockheed acquired Martin Marietta. And that was the tip of the iceberg.
There are various articles nowadays that expect the fragmented E&P world to go through a big wave of acquisitions. Devon (DVN) is considered an acquisition candidate by some. So are many small caps. Only time will tell.
MHR should earn $1.24+ in 2004, if you count the 9 cent reduction in EPS due to early debt extinguishment (otherwise, it's about $1.33+). The Q4/04 earnings announcement appears to be slated for 1 Mar 05. MHR shares are currently trading at about 10 times trailing 2004 earnings. And with 2005 consensus earnings pegged at $1.42 (and rising of late), the shares have room to run. Cold weather has settled into the plains and east/northeast and some large draws from NG inventories appear likely in the coming weeks. Commodity prices for oil/gas look very favorable for the coming weeks, with OPEC meeting on Jan. 30 (reduced production quotas a likely outcome) and the Iraqi elections taking place at the end of January. Could be the makings of a short-term "Perfect Storm" for oil/gas prices and an accompanying run-up in E&P prices, given that many E&Ps trade under 14 times earnings (APA, BR, CHK, DVN, MHR, PPP, etc.) just before blowout Q4/04 earnings are about to be announced. Those earnings announcements will render already low trailing P/Es significantly lower (in 2004, MHR should earn more than 3 times the 0.41 EPS reported in 2003). The key question in my mind is the timing here. How will these E&P shares react...and when? It appears very likely that OPEC will defend $40/bbl oil. Biggest potential negative facing E&P stocks appears to be the high storage levels of natural gas, given a mild summer, fall, and winter (to date); thus cold vs. non-cold weather will be supercritical over the next 8 weeks or so. Forecast over the next 10 days appears quite bullish for NG, particularly in the northeast, upper Midwest, mid-Atlantic, and elsewhere. But will it stay cold in those areas, especially the Northeast?