We're getting some clarity now on oil and how things will unfold. It looks like the companies with the most commodity exposure and the weakest balance sheets are going to be able to get by with some joint ventures like the one Linn Energy (LINE) did with Blackstone's (BX) GSO unit -- where for $500 million the finance guy gets the upside -- or the one Continental Resources' (CLR) Harold Hamm did with Rich Kinder, where for $3 billion Kinder Morgan (KMI) got the best pipe out of the Bakken.
This morning I posited that you had to watch Freeport McMoRan (FCX) to see what happens. With oil up 19% from last week, I think it might be able to get a Blackstone deal. In the meantime, there are a ton of oil company producers with pipe or pipe companies with too much commodity exposure, and Kinder will pick up that pipe.
What will the majors do? I don't know. Exxon (XOM) clearly said it wants to bolt on acquisitions, but is Exxon fleet of foot enough to do so?
Rich Kinder made it pretty clear that oil can't stay down here for long if there are only about 1.5 million excess barrels worldwide. That's why I think he had to make his move on Hamm's properties. It was just too dicey that Hamm could have ridden it out if Kinder didn't act. Now he has a pipe that handles oil that can be extracted profitably at $40 -- that's how good the acreage is that the pipes are attached to.
I think we are all going to have to be on the lookout for the acquirers now. They are going to get the better of the deal.
Sure, some guys won't be able to cover the cash flow, but this last spike has given some of the more hobbled companies all the breathing room they need to sell forward in the $60s, which is going to save a bunch of them until they can make a GSO/Kinder deal and lose their upside but stay alive to play another day.