Commodities Today: M&A Activity In The Oil Patch And Syria Impacting Metals

Includes: APA, APC, GLD, KOG, SLV
by: Matthew Smith

We continue to see a lot of deal activity in the oil and natural gas E&P space as property rich companies sell to cash rich companies. It is a trend which has been ongoing for years, however now we are seeing premiums on the prices paid for assets declining as the market has a lot of inventory to clear. With that said we were quite impressed with the news of Apache's sale of a stake in their Egyptian oil fields. It was a good price, with a good partner and in a deal that shareholders had been demanding. We would expect the Chinese to be buyers in international markets and with this deal it cements Northern Africa as one of their focal points.

Chart of the Day:

Another look at our gold chart today shows the collapse below $1400/ounce. The U.K. appears to be on the sidelines for any attack on Syria and that news appears to further delay any move by the U.S., France or even NATO. The SPDR Gold Shares (NYSEARCA:GLD) shall be down sharply today and we doubt there is renewed speculation until next week at the earliest.

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Source: Kitco

Although it appears that the interest in owning gold is fading, we think the buying sparked by fear will return. If readers wanted to gain exposure to precious metals in the meantime, looking at the iShares Silver Trust (NYSEARCA:SLV) might be the way to go as silver has exposure to economic gains made by an improving economy while also possessing the same insurance qualities as gold in times of trouble.

Commodity prices this morning are as follows:

  • Gold: $1394.20/ounce, down by $18.70/ounce
  • Silver: $23.475/ounce, down by $0.665/ounce
  • Oil: $108.06/barrel, down by $0.74/barrel
  • RBOB Gas: $3.0345/gallon, down by $0.0319/gallon
  • Natural Gas: $3.599/MMbtu, down by $0.019/MMbtu
  • Copper: $3.224/pound, down by $0.0365/pound
  • Platinum: $1518.10/ounce, down by $4.30/ounce

Oil & Natural Gas

The big news that caught our attention last night was the Apache's (NYSE:APA) move to monetize a portion of their Egyptian assets. Apache is selling a 1/3 stake in its Egyptian assets to China's Sinopec for $3.1 billion in a deal which could lead to other deals in the future (see story here). The move is quite smart for Apache as it minimizes their Egyptian exposure while also delivering cash which the company can reinvest in domestic assets that investors are much more interested in right now. Bringing in a Chinese state run company to a volatile region also enables the company to bring in diplomats other than U.S. officials to the bargaining table when situations get dicey. The Chinese will tolerate far less than the Americans, and history suggests that one would want to be on their side when at the negotiating table.

Buying on pullbacks has worked here and for those who bought on the most recent pullback the results have been stellar (keeping in mind that this chart does not show the gains from the Egyptian asset sale).

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Source: Yahoo Finance

This deal is exactly what investors have been calling for and a major reason why we have been supporters of the stock. Apache has the potential to be the next Anadarko Petroleum (NYSE:APC) as it refocuses its attention on U.S. domestic production. The company is playing catch-up here as their focus has been elsewhere the past few years but they do have some very nice assets. We still think that investors would be correct in pointing out that Anadarko has better short-term prospects than Apache due to their pipeline having been focused on shale plays in recent years, but Apache has some projects in the work which could turn out quite positive and the infusion of cash could lead to increased exploration efforts or possibly some M&A activity.

For our readers who are traders we want to point out the situation at Kodiak Oil & Gas (NYSE:KOG). We have pointed out before the fact that the company was trading north of $10/share and said that it would be important to watch how that played out. The shares have done a good job showing strength when the stock has come under attack and yesterday once again bounced back after briefly crossing below the $10/share level. Oil prices are high, but this might be a 'tradable' stock here for short-term swings with the technicals that have been improving and the continued impressive news flow out of the Bakken from nearly all market participants. The Bakken will continue to see consolidation, and although Kodiak saw little interest earlier this year when they were open to the idea, we think 'Big Oil' might be forced to buy premier assets in the premier shale plays over the next few years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.