'Tis the season for mergers and acquisitions in the oil patch.
At least, it will be soon.
Put yourself in Big Oil's shoes for a moment, and you'll understand why M&A activity is going to heat up.
Last year, oil companies all over the world capitalized on a wild run-up in crude prices. By June 2022, WTI prices had peaked just north of $120 per barrel. I'll give you three guesses as to how Big Oil fared last summer, but you're only going to need one.
To say it was a bountiful year of record-breaking profits would be an understatement.
Five of the largest oil companies hauled in a jaw-dropping $200 billion in profits, including Exxon's $56 billion windfall. I'm sure the company's green activist board members were thrilled about that one.
In other words, Big Oil is flush with cash… and you can bank on them spending it.
This year, the oil sector is going to experience another monster year, especially as we move into the summer driving season. According to Rystad Energy, oil companies are projected to produce roughly $120 billion in free cash flow.
And you can bet they're going to put that money to good use.
If history is any indication, the massive cash injection into the oil sector last year is about to fuel M&A activity later this year.
Why?
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For starters, this is how Big Oil grows.
Some of my veteran readers will remember that Big Oil came late to the shale boom more than a decade ago.
Back then, you had a situation where you saw a lot of smaller independent companies with a ton of land, as well as mountains of cash sitting in Big Oil's coffers — an injection of cash that came from oil prices spiking just prior to the 2008 crash.
That's the reason we saw Exxon buy XTO Energy for around $40 billion — roughly $30 billion worth of stock and another $10 billion in debt.
Since then, Big Oil has developed a taste for buyouts in prominent shale plays.
In 2017, Exxon picked up another $6.6 billion worth of acreage in New Mexico's Delaware Basin.
Last year, M&A activity fell to the lowest it's been in about 15 years; this year could turn out to be drastically different now that Big Oil's pockets are full.
Look, I wasn't being hyperbolic when I told you that this is how Big Oil grows.
Why buy a carton of milk at the store when you can buy the cows… all of them!
This is just part of the cycle. While smaller oil companies have undoubtedly learned to be fiscally conservative since the shale boom officially kicked off in 2008, the days of taking on massive amounts of debt to fuel their drilling addiction are gone. These companies simply don't have the huge reserves of cash to finance another drilling frenzy.
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All we need is one powerful deal to ignite the rest of the sector.
That, dear reader, is what's coming soon.
Lately, some not-so-quiet rumors have swirled around another potentially massive buyout by Exxon. The company was reportedly in talks to acquire Pioneer Natural Resources.
If that name doesn't ring a bell, it should.
Pioneer Natural Resources is one of the largest oil producers and most active drillers in the entire state of Texas.
And if Exxon pulls the trigger, it's going to pay a pretty penny for it — easily more than it paid for XTO Energy. As I write this, Pioneer is trading with a powerful market cap of nearly $53 billion.
Now here's the best part…
It won't just be Exxon looking to bolster its books and go on a spending spree. However, when they finally announce that deal, it won't come as a surprise to many.
That's why I strongly recommend you take just a moment out of your day to check out my latest investment presentation. Inside, I'll highlight three must-buy oil stocks you should get in on before prices surge again this summer.
The next step is yours.
Until next time,
Keith Kohl
Check us out on YouTube!
A true insider in the technology and energy markets, Keith's research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing's Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith's keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith's Topline Trader advisory newsletter.
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