Will the damage to the oil firms be too great? Is there any real come back now? As I look through the charts for stocks as varied as Noble (NBL) to Conoco (COP) to Devon (DVN) and Southwestern (SWN), I am awestruck at the destruction.
Many of these stocks have shed gigantic gobs of points. Take Apache (APA). Here's a fabulous company, with amazing oil growth and a much better portfolio than it had before it shuffled its deck to get away from too much oil in political risky countries. Yet it is almost half from where it was in 2011! That's just a ridiculous decline, especially given how well the company's been able to grow its production growth.
Or Noble, which has plummeted from $79 to $56 in just four months, even as it has found a considerable amount of oil in the Niobrara and has vital holdings off the coast of Israel that have gotten even more valuable because of tension between Russia and Ukraine. Or how about Southwestern falling from $49 to $31 in just seven months' time, with the last few points coming because of a brilliant acquisition of some incredibly good natural gas properties from Chesapeake (CHK)? I think these Marcellus and Utica properties, particularly the natural gas holdings in West Virginia, are worth much more than what Southwestern paid. How could they not be? Chesapeake needed the money badly to maintain its credit. We know that Magnum Hunter (MHR) just made a gigantic discovery in West Virginia, part of the same shale that Chesapeake sold. Not only that, but it isn't like natural gas is getting hit the way oil was. Yes, it has hit an 11-month low, at $3.80 per million BTUs, but these holdings will still be immensely profitable.
Now, this group is undergoing a conversion from being high growth to being value, even as the growth will still be terrific. The metamorphosis is pretty remarkable, given that when these stocks were down here last time they were pumping a lot less oil. But it doesn't matter. The group's been tainted and tabbed with worry about oil's glut and stagnant world growth.
So what has to happen? I think that one of these larger independents has to be bought by a major that is starved for growth. When you look at the balance sheets of the majors, they are all terrific. But their production growth is anemic. I know the potential targets will go lower if oil reverses again and trades under $80. If they were to buy any of these hammered independents, I think the moves would be cheered. You might ask, wait a second, the market hammered Southwestern for its buy of Chesapeake. Nevertheless, I think that's because some thought Southwestern was a natural target itself.
Is an acquisition likely? I think these major oils like Exxon (XOM) and Chevron (CVX) or Total (TOT) and Statoil (STO) have long-term views that include much higher oil prices. They are most likely in agreement with Schlumberger (SLB), which said on Friday that it expected an uptick in drilling and demand in 2015.
That, to me, says buy this next leg down that should start today, don't sell it. Stocks like Anadarko (APC), Apache, Noble, EOG (EOG), they have come down enough. I think they are buys now that they have paid their dues, if only because I do not believe these companies can stay independent given their incredible holdings in places the majors covet and haven't been able to exploit because they are so slow of foot.