#mergermonday
Oasis and Whiting merge and Oxy sees Icahn divest while Buffet more than doubles down
It's fun to look back on posts and today, with #mergermonday, we continue the theme of "DRW is usually 2 years too early." Here is my post for #technicaltuesday on Oasis that I wrote in February of 2020... just before COVID.
And here is the one I did on Whiting in April 2020.
The point is not to say "I was right....", even a broken clock is right twice a day. The point is to say logic will prevail when it comes to consolidation, and Whiting-Oasis has made a lot of sense for a long time.
The challenge over the last 2 years was there wasn't enough money to go around to pay off management teams to reduce the CEO/bbl in industry. But now at $120/bbl and without an obvious use of proceeds in ramping up capital (which is illogical... lower production leads to higher prices), companies will pay special dividends and merge to build scale to compete and withstand ESG pressures. And here, I have to add, there are so few qualified workers to be on rigs, frac crews, mining sand as so many left over the last 2 years, even if companies wanted to ramp up, they couldn't.
I give Danny Brown and his team at Oasis and Lynn Peterson and his team at Whiting a lot of credit for getting the "Merger of Equals" that has made sense for 2 years across the line. That Whiting shareholders will get $6.25/share in cash AND Oasis shareholders will get a $15/share special dividend is a great use of excess cash flow. Both companies are up 6% on the news and the efficiency of the new portfolio and the incredibly low debt (having both emerged from bankruptcy) will give them the dry powder they need to help Exxon or Conoco divest their positions and redeploy into the Permian.
Lots more deals make a lot of sense, and I expect now is the time to get them across the line.
Since 2019, I have written extensively of the logic of my support for Vicki Hollub, Oxy and their Anadarko acquisition. Of all the positions I've taken over the years- from COVID, to managing balance sheets, to identifying as vaccinated- my support of Oxy was ironically the most controversial. I won't re-litigate my reasons here, but I did want to revisit it with the benefit of 3 years of hindsight.
I first met Vicki in person when I was invited to New York to hear her speak at a Financial Times fireside chat on the Anadarko merger. I booked a flight for the next day and found myself in New York with 200 other people waiting for Vicki to go onstage. Standing by herself, I walked up to her and said "I'm David Ramsden-Wood, there is no reason you should know me but I do this thing called the hottakeoftheday and I'm a huge fan of yours." She grinned, "Said, I've heard of you" and I proceeded to photobomb a selfie with her. Sometimes, even I'm surprised by the things I do.
Timing is everything. When Oxy announced the Anadarko deal, oil was $73/bbl. When we sold OneEnergy at the end of 2018 and 2020 happened, we looked like the smartest guys in the room. Flash forward to 2022, and Colgate, who was funded at the same time of OneEnergy, is evaluating a $5 billion IPO/sale and those that bought the assets from OneEnergy are absolutely crushing it. But price matters, and you play the hand you are dealt.
So last week, when it was announced that Carl Icahn was divesting the rest of his Oxy shares after making $1 billion on the position, and that Berkshire Hathaway bought 60 mm shares last week to bring their total holdings to over 90 mm shares. Their stock surged 20% and they are back to the level they were at when the Anadarko deal closed.
Is this vindication for the team at Oxy? No more so than it is vindication for the team at Colgate. Nor is it condemnation of the team at Concho that sold to Conoco, or Parsley who sold to Pioneer closer to the lows. Timing is everything, and deals must be evaluated over the long term. We are in the third inning of consolidation and there are a lot of moving pieces. Importantly, as excess cash flow is able to be focused on debt repayment rather than production growth and as companies focus on producing the lowest carbon barrel of oil while consolidating the industry to reduce the CEOs/bbl, Oxy will play a significant role.
So the US rig count bottomed out around 250 a couple of years ago. Last number I saw showed us up to about 650 rigs running. Do you think we are peaking? Or will they be able to cobble together enough crews to get that number higher in the short term?