Macro-Economist and momentum trader Garrett Baldwin is here to tell us about the biggest oil story of the last two decades.
It has nothing to do with Russia, Ukraine, or Saudi Arabia. Instead, it's all about the good ol' US of A and something he calls “The Great American Land Rush.”
The Teaser
It's no secret that the energy sector has been on an absolute tear over the last 18 months, crushing the S&P 500 by six times. Now a single event could transform the entire landscape and give us another opportunity to make big bucks in oil.
Garrett Baldwin allegedly spent more than a decade as a corporate spy and still has his ear to the street in Washington and Wall Street. It is presumably what gives readers of his Money Morning newsletter an edge.
I say presumably because I haven't reviewed one of his offers up until now. We have however reviewed plenty of energy-related teasers here at Green Bull, including Bryan Perry's “Energy Giant” and Whitney Tilson's “Next LNG Powerhouse”, among others.
So what is the big event that is supposed to be so important?
Apparently, it concerns a potential $50 billion mega-deal at the very heart of the world’s biggest oil field, in West Texas, between ExxonMobil and Pioneer Resources.
The deal was in the preliminary stages back in April, but we have heard next to nothing from either party since then. Garrett is now expecting it to close sometime before the start of Q4.
The thinking is a deal of this magnitude – one of the biggest in history, would instantly trigger a mergers race, amongst the 400 companies that operate in the Permian Basin. Land values would go up overnight and multiples would rise. Giving investors an opportunity to “triple their money or better in short order.”
A New Buy-out Boom?
There are a whole lot of “what-ifs” attached to this potential catalyst, more than I like to see in an M&A arbitrage opportunity.
But it holds true that early-stage arbitrages and buy-out booms often carry the biggest short-term profits.
Garrett says it’s not a question of if this Permian buy-out boom will happen, but when.
He reasons that since all the big players in oil are absolutely flush with cash right now, the only way all that excess cash is going to be spent in the next few months is on a buying spree in the Permian basin. I can think of a few other ways, but ok.
In this regard, Garrett has five oil companies that we should be buying to take advantage of this flashpoint in the energy sector.
The Pitch
All the key information on the five oil companies is included in a special report called “How You Can Triple Your Money from the Permian Buy-out Boom.”
When clicking through to the sign-up page, it says there are only “100 reports available today.” The moment we join Garrett's Flashpoint Trader advisory service, one of them is ours. At a cost of $1,995 for the first year, it isn't cheap. But we are promised up to five new recommendations per week, access to a live portfolio, a bonus report about a tax shelter program, and more.
3 Reasons for the Great Permian Basin Land Rush
Besides the recording-breaking profits of the oil majors, there are two other reasons in favor of Garrett's catalyst coming to fruition.
By now we know the top 5 majors (Exxon, Chevron, ConocoPhillips, Occidental, and EOG Resources) made almost $200 billion between them in pure profits last year.
A figure that is greater than the economic output of many countries.
Some of these majors have already made their intentions about investing in the Permian Basin crystal clear.
For example, Exxon recently announced it is shuttering many of its overseas operations and plowing $25 billion of its annual budget into operations in the Permian instead.
Chevron also recently closed its operations in Thailand, Indonesia, Azerbaijan (which the teaser hilariously misspells as Azzzer by jan), Denmark, and Brazil. Instead, it is allocating $14 billion of capex to its US operations, chiefly in the Permian.
A Financial No-Brainer
The simple truth is, production costs are significantly cheaper in the Permian basin compared to just about every other major shale oil field in the United States.
A breakeven price for most wells is $50 per barrel in the Permian. Given today's prevailing WTI Crude price of about $68, that's a 35% profit. Multiply this by billions of dollars and it's a huge margin.
The Permian Basin also has a long runway ahead, with one analysis saying the US has 76 billion bbl of untapped reserves and most of this is located in the Permian.
Thus, investing in the region or more plausibly acquiring smaller drillers that are already set up in the Permian seems like a financial no-brainer for an operation flush with cash that is in need of growth.
In this respect, Garrett has five companies for us that he thinks are obvious takeover targets by the majors. Let's find out their names.
Revealing Garrett Baldwin's Great American Land Rush Stocks
Company #1
- This company just completed a $2 billion buying spree in the Permian – with three big acquisitions, including a recent $627 million purchase.
- Its total land in the basin has shot up 5X since 2016 to 256,000 acres.
The name of the first company is Earthstone Energy Inc. (NYSE: ESTE) and it purchased the assets of privately held Titus Oil & Gas Production LLC last July for exactly $627 million.
Company #2
- Has a major 40,000-acre presence on the prolific Northwest Shelf of the basin, which has produced 3 billion barrels of oil over the last century.
- Recently made a transformative $330 million acquisition in the Permian’s New Mexico region, adding over 100 new drilling sites to its footprint.
Riley Exploration Permian (NYSE: REPX) is the pick here. It picked up the New Mexico oil and natural gas assets of Pecos Oil & Gas earlier this year for $330 million.
Company #3
- A recent $4.3 billion acquisition boosted this firm’s footprint in the region to 179,000 acres.
- Last year it delivered an impressive $235 million to shareholders, including dividends.
The mega-acquirer is Ovintiv Inc. (NYSE: OVV). It bought out the Permian Basin assets of three different companies controlled by private equity firm EnCap Investments back in April.
Company #4
- Owns a total of 533,260 royalty acres with a 4.4% revenue interest across the core of the Permian Basin.
- Has existing relationships with over 90% of the top Permian operators and blue-chip midstream companies including Phillips and KinderMorgan.
Garrett is talking about Texas Pacific Land Corporation (NYSE: TPL). As per its February 2023 investor presentation, TPL owns an average 4.4% revenue interest across 533,260 gross royalty acres in the Permian Basin.
#5 Permian Resources Corp. (NYSE: PR)
Ever generous, Garrett volunteers the name of the fifth company, saying:
“Permian is a leading candidate for a takeover target in the first wave of M&A activity, owing to its ready-made set-up in prime locations and watertight financials.”
Double or Triple Our Money in No Time?
Garrett is expecting any one of these trades to triple our money at the very least.
As someone that regularly looks at announced M&A deals as a way to make some sure-fire short-term profits in the market, I can tell you that they don't double or triple your money. A 20-25% score in less than three months' time is a good gain.
What Garrett is proposing here is speculating on unannounced deals and using options as a way to juice your potential returns. Needless to say, these two things exponentially increase your risk and I wouldn't recommend doing either.
Judging by the number of transactions, deals in the Permian Basin have picked up pace ever since 2016, which makes it ripe for M&A arbitrage. But I would rather wait for announced deals and try to exploit market price inefficiencies in those rather than buy and hold shares of past acquirers.
Quick Recap & Conclusion
- Macro-Economist and momentum trader Garrett Baldwin is here to tell us about the biggest oil story of the last two decades – something he calls “The Great American Land Rush.”
- The teaser is all about a new buy-out boom in the petroleum-rich Permian Basin and Garrett has five oil company picks that are major players in this “Great Permian Basin Land Rush.”
- All the information on these five oil companies, including their names and ticker symbols is revealed in a special report called “How You Can Triple Your Money from the Permian Buy-out Boom.”
- Fortunately, Garrett made the fatal mistake of dropping several clues about each, which we used to reveal all four – Earthstone Energy Inc. (NYSE: ESTE), Riley Exploration Permian (NYSE: REPX), Ovintiv Inc. (NYSE: OVV), Texas Pacific Land Corporation (NYSE: TPL), and Garrett's own revelation of pick #5 as Permian Resources Corp. (NYSE: PR).
- Garrett's picks are past acquirers of Permian Basin assets, which he is recommending we buy using options to “maximize our returns.” This is pure, unintelligent speculation at its finest.
Have you dabbled in Permian Basin stocks up to this point? Tell us in the comment section.