A recent announcement of a prominent company buying energy assets may raise a comparison to previous cycles where players outside the industry made large purchases of oil and gas companies at the peak of the cycle.

IN PICTURES: 10 Tips For Choosing An Online Broker

GE Makes Two Oil And Gas Property Acquisitions
General Electric
(NYSE: GE) announced two acquisitions of oil and natural gas properties in North America. The company paid $65 million to a private company for properties in Texas, and $137 million to buy acreage in North Dakota from St. Mary Land & Exploration (NYSE: SM). GE is partnering with two smaller oil and gas companies to manage these properties.
The North Dakota properties are in McKenzie County, and they may be prospective for the Bakken Shale or the Sanish Three Forks formation, although GE didn't release any data on reserves or production on its new assets.

Other McKenzie County Players
Continental Resources
(NYSE: CLR) has been active in McKenzie County, and in the company's Q4 2009 it reported two well completions here. The Hendrickson 1-36H and Simmental 1-21H well produced an average of 1,990 and 1,271 barrels of oil equivalent, respectively, during the first seven days.

Kodiak Oil & Gas (NYSE: KOG) is also developing acreage here, and it has allocated $5 million to drill three gross wells in 2010 to test its potential.

Early 1980s Deja Vu
Some investors may find it a little disturbing when entities from outside the industry step in and buy assets, as this may be seen as a psychological sign of a peak in asset prices. During the last energy super cycle in the early 1980s, DuPont (NYSE: DD) purchased Conoco as a hedge against rising and volatile prices for its feedstock for chemicals. DuPont later got rid of Conoco in the late 1990s through a spinoff and sale. Conoco later merged with Phillips Petroleum to form Conoco-Phillips (NYSE: COP).

Another large deal at that time was U.S. Steel (NYSE: X) buying Marathon Oil (NYSE: MRO) for $6.3 billion. It might be a stretch to compare the small purchase by GE to these two deals, but this could just be the beginning of what Peter Lynch, the famed manager of the Fidelity Fund, called "diworsification", a process where companies buy businesses that are not complementary to current operations.

These purchases also coincided with a peak in oil prices when the media was full of scare stories about the soaring and permanently higher prices for oil, the difficulty in finding new reserves and the shift in world dominance away from consumers to oil producers. Sound familiar?

Watch For Signs Of A Peak
Understanding the psychology of an investing climate is an important part of the stock selection process, although one that is hard to analyze empirically. Nevertheless, investors should always pay attention to signs that may indicate a peak is near. (Learn about peak oil; read Peak Oil: What To Do When The Wells Run Dry.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Asset Manager Ethics: Acting With Competence and Diligence

    Managers must make investment decisions based on their personal investment process, which in turn should be based on solid research and due diligence.
  2. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  3. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  4. Economics

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  5. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  6. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  7. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center