I have three quick ideas for today’s column, with the hope that one of them will resonate with you. Next week is my vacation week, so I hope that you will stay out of trouble until I can be with you again in the week of March 2nd. (We have a very interesting guest writer lined up for you though.)
First, Linn Energy (LINE), a core holding of mine, today bought Berry Energy (BRY) in an all stock deal, paying a 19% premium and more than the Reuters estimate of intrinsic value for the company. In spite of all this, Linn shares are UP almost 5% this morning, not what you’d expect for a company that is supposedly overpaying for a target. That’s how you know that Linn has been massively undervalued by the Street and deserves investment, even more so now.
With the purchase Linn adds 30% of proven reserves where it counts, in liquids and crude production in California but particularly in the Permian basin, where Linn has already terrific infrastructure and Berry’s assets are a terrific fit. Go on, add that to their very healthy and I believe extremely safe 8% dividend. You want more? Ok, I think Linn remains one of the best take-out targets in the patch – and anything under $40 is a gift. Even with the jump today, it’s a buy.
SM energy proved today that the Eagle Ford and the Bakken are easily number one and number two in hot hot hot plays in domestic liquids and crude oil. By increasing proven reserves by 40% over 2011 and decreasing their production costs per barrel of oil equivalent, SM energy seems finally on the right track for a turnaround a long time in the making – 2012 was an admittedly horrible year. They’re still losing money, reporting an adjusted $0.57 a share of losses, but with today’s stronger report, shares are likely to reemerge above $60, a key technical level that represents a fresh break out. SM energy is finally one you can own again.
Finally, reports from the front in the ongoing negotiations that would keep BP from going to trial for their Deepwater horizon catastrophe of 2010 aren’t good. With multiple states in the negotiation all with very big hands out to maximize the money they feel they are entitled to from the mega cap oil company, a settlement continues to be very unlikely. It is what BP needs more than anything right now – to finally get Deepwater Horizon behind them and have some closure on the litany of lawsuits that seem to have no end. If they are forced to go to trial, the future is hard to predict: Clean Water regulations put the possible fines between $5B and more than 4 times that – a big difference to be sure. Still, BP seems resigned to go through the long pains of a trial – they didn’t even participate in negotiations this time, letting the states duke out their claims among themselves first.
It remains tough to own BP with all this still hanging over them, not at this price.