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Conoco to buy Concho for $9.7B, creates shale giant

Scott Bauer Prosper Trading CEO joins the On the Move panel to discuss the latest oil news moving the markets.

Video Transcript

ADAM SHAPIRO: And there was big news this morning in the energy sector because we know about the deal in which you got ConocoPhillips acquiring Concho Resources. It's an all stock deal valued at $9.7 billion. Essentially, if you hold shares right now with Concho-- which are trading higher by about half a percent-- if you hold those shares, you're going to get 1.46 shares of ConocoPhillips when this deal closes.

Let's figure out what this truly means for the energy sector, especially shale production. And we bring in to the sector to talk about this Scott Bauer. He's joining us right now from Prosper Trading. He is the CEO of Prosper Trading Academy. Good to have you here, Scott. And what do you make of this deal? We're going to see more consolidation with the shale producers because they're in trouble right now. But is this the right deal?

SCOTT BAUER: Well, I think the deal is a good one for Conoco. They're in-- actually-- a very good spot. They've come out of this downturn-- if you will-- in a very good, cash-rich position. They're probably better positioned than maybe any of the other big players in this space. So I think they were looking to get Concho at quite a discount.

Let-- let me point something out here from the trading side of things, or from, perhaps, the arbitrage side of things here. Is if you look at the price of Concho stock right now, it's not trading really at a discount for what the deal price is. When we see these deals come out-- and not just in the energy space, but typically, you know, across the board-- we will see somewhere between, you know, a 3% to 5% discount.

This thing is not trading at a discount, which tells me-- just as being a trader having traded through mergers and acquisitions and deals-- that we may not have seen the last of this. I'm not suggesting that there's another company coming in with a higher bid, but it's just interesting to me that there's no discount right now.

JULIE HYMAN: That is interesting, indeed. Scott, it's Julie here. This deal means that there is one fewer customer-- one less customer for--

SCOTT BAUER: Yep.

JULIE HYMAN: --another company [INAUDIBLE] today. That's Halliburton. Halliburton out with their news this morning that actually beat estimates of [INAUDIBLE] items. But interestingly, the CEO of Halliburton seemed to indicate or hint that things have maybe reached a bottom for oil services in North America. Given the other signals you're looking at, does that ring true to you?

SCOTT BAUER: Well, I think that maybe he's trying to be a little bit optimistic. Yes, maybe it has reached a bottom. I know internationally the numbers are not as good. The outlook is not quite as good. Have we reached the bottom? I think it's very difficult to say. Where is the demand going between now and-- not just the next six months, Julie-- but the next two years, the next five years, the next 10 years.

So I think maybe he's being a little bit optimistic. However, the street-- the market-- seems to like it. They seem to like and maybe agree with his standpoint that, yeah, maybe they've reached a bottom here because the market's reacting positively.

ADAM SHAPIRO: But Scott, aren't we going to see pressure on oil prices to go up? If you take a look at the Chinese getting control of COVID within their borders, their economy now is on the upswing more than 4% growth. And eventually we're going to have that same scenario in Europe and in the United States. So doesn't that mean-- whether we've hit bottom or not-- we're certainly below. Isn't now a time-- a good opportunity-- for those who might be willing to take the risk to get in on oil?

SCOTT BAUER: That's a valid point, Adam. But, you know, much can-- you can say that over the last six months-- maybe even the last year or so-- there is total demand destruction. There is still total demand destruction internationally, universally. Is that going to change? It's going to change at some point here. But is that going to change next week, next month, early 2021, end of 2021?

I think that is anyone's guess. And obviously that's completely correlated with what happens with reopening and the pandemic and hopefully getting the therapeutics and vaccines that we all need. So you can look at and say, yeah, you know, we're probably close to a bottom, but I can't pinpoint that we are at the bottom.

JULIE HYMAN: So, Scott. Let's [INAUDIBLE] more specifically for a moment. I mean, oil has been stuck in that very tight trading range. Any sign of it breaking out-- up? It sounds like you think it's-- if it's going to go anywhere it would go up, but it's not necessarily likely to go up out of that trading range right now.

SCOTT BAUER: Absolutely. A very tight trading range. And I just don't see anything that is going to take us-- in the near future-- above-- let's call it-- 41.5 42 in West Texas at all. I think everything we're seeing are headwinds. You know, we've got a virtual meeting coming out of-- of some of the OPEC countries today, which there's probably not going to be much change there. The next full meeting is in January.

So I just don't see anything until we get through-- and I don't think the election has anything to do with it-- but until we get through maybe this next wave and the next quarter and we actually get closer to a vaccine happening. Or therapeutics becoming more widely available. As soon as we see that, I think that would be the catalyst for breaking out. But right now, it is still just total demand destruction.