The energy sector was a dynamic place to invest in 2011, as the industry buzzed with deal activity as several larger oil and gas companies bought into the onshore United States. The industry also continued the break up trend as some major energy companies felt that a singular focus on one part of the energy complex was the proper strategy to pursue. (To know more about oil and gas, read Oil And Gas Industry Primer.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Large Deals
Deal activity continued in 2011, with several non-United States based companies buying their way into the shale and unconventional resource boom underway in the United States. One of the largest deals of the year came in July when BHP Billiton (NYSE:BHP) announced the purchase of Petrohawk Energy in a deal valued at $15.1 billion.

Petrohawk Energy had a large position in the Eagle Ford Shale as well as other properties in the onshore United States. BHP Billiton paid dearly for the company as the $38.75 per share cash offer represented a 65% premium to Petrohawk Energy shareholders.

This was the second major acquisition in 2011 for BHP Billiton, as the company also purchased shale gas assets in the Fayetteville Shale from Chesapeake Energy (NYSE:CHK) earlier in the year for $4.75 billion.

In October, Statoil ASA (NYSE:STO) also bought into the shale boom, offering $4.4 billion for Brigham Exploration Company. The company paid a 36% premium and picked up substantial developed and undeveloped acreage in the Bakken Shale.

Breaking Up
The break up trend continued in 2011 as many integrated oil companies decided to separate through spinoffs or other restructurings. The largest of these was ConocoPhillips (NYSE:COP), which decided to spin off its downstream operations as Phillips 66.

Several other companies completed restructurings during 2011, or are awaiting final shareholder or regulatory approval. Marathon Oil (NYSE:MRO) jettisoned its downstream operations as of June 30, 2011 into Marathon Petroleum(NYSE:MPC), and 2012 will Marathon Oil's first full year as an independent exploration and production company.

Williams (NYSE:WMB) also announced a restructuring and will spin off the company's exploration and production business to shareholders by the end of 2011. The new public company plans to operate as WPX Energy and focus on the development of onshore properties in the United States.

North Dakota Break Out
Although the oil and gas industry has a long and storied history in North Dakota, the state was not traditionally a major focus for exploration and development. The commercialization of the Bakken in the Williston Basin has changed everything for that state, and led to another boom in the region.

Oil production from North Dakota soared during the year, reaching 488,000 barrels per day in October 2011, up from 343,000 barrels per day in January 2011, and just 236,000 barrels per day in January 2010.

Operators active in the Bakken and other plays in North Dakota include Continental Resources (NYSE:CLR), Whiting Petroleum (NYSE:WLL) and EOG Resources (NYSE:EOG).

Investment returns were not as exciting, however, and probably did not make investors happy in 2011. The SPDR S&P Oil & Gas Equipment & Services (ARCA:XES), which is composed of many oil service and drilling companies, was down 12% through December 20.

The SPDR S&P Oil & Gas Exploration & Production (ARCA:XOP), which is composed mostly of independent exploration and production companies, did slightly better and was flat for the same time period.

The major integrated oil companies did slightly better in 2011. Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Conoco Phillips were up 11, 13 and 4%, respectively, as many fled to companies perceived as safer by many investors. (Find out how to invest and protect your investments in this slippery sector. For more, see What Determines Oil Prices?)

The Bottom Line
An exciting and dynamic industry does not necessarily make better investment returns, as many of us found out in 2011. We can only hope that the recent obsession with restructurings will help set up the sector for a better 2012. (For additional reading, check out A Guide To Investing In Oil Markets.)

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

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    The 5 Best Buy-and-Hold Energy Stocks

    Understand why energy companies' stock are volatile when oil prices are volatile. Learn about the top five energy companies to buy and hold.
  2. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  3. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  4. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  5. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  8. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  9. Markets

    How Energy’s Debt Bubble Affects Your Portfolio

    Depressed crude oil prices are here to stay for the foreseeable future. Here's how it will affect an oil industry riddled with unsustainable debt.
  10. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  1. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!