Deal Making Continues in Energy Sector (BP, VQ, SSN, GST, LEI)
Takeover bid for Venoco shows Energy Sector still Vibrant By Jonathan Yates
Published: September 1, 2011 6:51:35 AM PDT
For those who think that deal making is over in the energy sector, the takeover bid for Venoco (NYSE: VQ) and BP (NYSE: BP) and Reliance's Industries' $7.2 billion agreement to explore and drill in India should have investors focusing on small cap stocks such as Samson Oil and Gas (NYSE: SSN), Gastar Exploration (AMEX: GST) and Lucas Energy (AMEX: LEI). What makes oil companies even more appealing, particularly small caps with proven reserves, is the strong takeover activity in the sector this year.
Samson Oil and Gas, up more than 100% for the year but down about 20% for the quarter, explores and develops oil and natural gas in the United States. With a price to earnings ratio of 4.71 and no debt, Samson has very strong financials. Samson Oil and Gas is up more than 9% for the week. Samson Oil and Gas has a relative strength rating of 54. A relative strength index rating of 70 is when a stock is viewed as being overbought.
Gastar Exploration, like Samson Oil, is an independent oil and gas company operating in the exploration, development and production of oil and natural gas in the United States. Gastar is up about 7% for the week. The stock is trading more than 20% beneath its year high. It has a relative strength index rating of 55 and is trading above its 20 and 50 and day moving averages
As with Gastar Exploration, Lucas Energy is a value play with oil and gas holdings in Texas. This is an area of focused takeover activity, with Marathon expressing in an interest in assets owned by Lucas. Yesterday, Lucas Energy was up more than 2.5%. It is trading double digits beneath its 50 and 200 day moving averages. Lucas Energy has a relative strength index rating of 43.
Overall, there will continue to be a strong global demand for oil. Recent articles have predicted that prices will be as high as $150 a barrel by the spring. China, the largest energy user in the world, just posted a 9.5% growth rate for the second quarter of 2011. Lucas, Gestar, and Samson Oil and Gas all have upside for speculators, traders and investors. With the dollar still weak, speculators will continue buying commodities such as oil. Economic demand and strong financials make Samson Oil, Lucas Energy and Gastar Exploration attractive for all investors. As the Venococ and BP deals evince, the oil sector is still brimming with activity that will take share prices higher.
