Energy stocks dominated the list of worst-performing mid cap stocks in the S&P 500 in March, as investors turned against stocks leveraged to natural gas, a sector that most investors used to favor.
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This shift away from natural gas is highlighted by the latest deal in the energy sector. SandRidge Energy (NYSE:SD) announced it was purchasing Arena Resources (NYSE:ARD) for a combination of stock and cash. Arena Resources is heavily leveraged toward oil, and this purchase fulfills the strategy that SandRidge Energy laid out at its recent analyst meeting to focus on oil and away from natural gas.
Consol Energy (NYSE:CNX) was the worst-performing mid cap in the S&P 500 in March 2010, down 17%. During the month, Consol Energy, a coal company, moved further into the natural gas camp through two separate acquisitions. The company announced that it would purchase the natural gas assets of Dominion Resources (NYSE:D) for $3.48 billion.
Consol Energy also said that it would purchase all the outstanding shares that it doesn't own of CNX Gas (NYSE:CXG), a natural gas leveraged exploration and production company with properties in Appalachia. Consol Energy already owns 83.3% of CNX Gas.
Other natural gas related stocks were also battered around in March 2010. EQT Corporation (NYSE:EQT) and Cabot Oil and Gas (NYSE:COG) were both down 10% during the month.
EQT Corporation announced an offering of stock to help develop its Marcellus Shale acreage, including new properties acquired in a $280 million purchase announced at the beginning of the month. The market apparently didn't like the dilution associated with the equity issuance.
Cabot Oil and Gas didn't do anything extra to end up on the worst performing list for the month, but the company is heavily leveraged to natural gas through its Marcellus Shale properties in Pennsylvania, and Haynesville Shale properties in Texas and Louisiana.
CF Industries Holdings (NYSE:CF) was down 14% in March 2010. The company has been involved in a buyout struggle with several of its competitors in the agricultural chemical industry over the last year. This activity finally came to a head in March 2010, when Agrium Inc. (NYSE:AGU) announced that its was dropping its year-long effort to buy CF Industries Holdings.
CF Industries Holdings also announced the purchase of Terra Industries (NYSE:TRA) during the month for $4.7 billion. Terra Industries chose the offer from CF Industries Holdings over one from Yara International ASA, a Norwegian company.
The Bottom Line
Investors and the industry have recently become bearish on energy stocks leveraged to natural gas, concerned about falling prices and the possibility of a large amount of supply coming on line later in 2010 and 2011. This bearishness has led to a rush toward companies with oil in its production and reserve base. (To learn more, see our Oil And Gas Industry Primer.)
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