Oil and gas companies have been having a landmark week as M&A within the sector comingles with the rising price of crude oil. Earnings for some of the top companies in the sector next week have also been prompting greater activity in the sector.
Friday, crude oil futures rose alongside a statement from the Eurozone, pledging to reveal further details surrounding the protracted rescue plan for the region’s banks. Additionally, strong domestic earnings from major companies like McDonald’s (MCD) seemed to energize investor’s views regarding the state of the U.S. economy and by proxy, oil stocks.
Oil and gas companies flourished in trading following the announcements with the super majors by market value, Exxon Mobil (XOM), Royal Dutch Shell (RDS.A), Chevron Corp. (CVX) and BP (BP) all up over a percent during the session.
Beyond the positive economic news and rising price of crude, investors are looking forward to the group’s announcement of earnings next week. The super majors, which also includes France’s Total SA (TOT), are predicted to announce a year-on-year rise of net income around 31 percent. The current rally in shares could at least be partly tied to the positive earnings expectation.
Some investors had worried how adversely income would be affected by the easing of oil prices during the second quarter, but the strong annual predictions, current rally and potential resolution to the European banking crisis, have some feeling hopeful about how the companies will end the year and proceed into 2012.
Another issue impacting shares of oil and gas companies is the flurry of M&A in the sector from Kinder Morgan’s purchase of El Paso (EP) to the acquisition of Bringham Exploration (BEXP) by Norwegian Statoil (STO). The increase in market cap for these companies is naturally going to restructure how other companies within the sector operate. A larger market cap means bigger projects which will potentially limit the strategies of mid market oil companies.
Shares of the new majors were headed higher while midcap companies were largely excluded from the day’s rally.
Kinder Morgan (KM) bucked the trend of strong large cap oil & gas companies, reversing gains after it was announced that Goldman Sachs (GS) would be sued by a pension fund for its involvement in the deal. The fund alleges that the investment bank had a conflict of interest while acting as an adviser for the intended $21 billion acquisition of El Paso Corp by KM. Shares of El Paso (EP) climbed sharply during the session.