Novice Investing - Oil Company Keeps Pumping

Date: Thursday 20th 2008f November 2008 04:25:09 PM

Oil Company Keeps Pumping - 12/12/2005

By: Novice Investing Staff

High oil price do not always harm everybody. There are these folks who sell this oil to us and they benefit tremendously from higher oil price. Today, flushed with cash, ConocoPhillips (COP) is reportedly in talk for a $ 30 Billion merger with natural gas producer Burlington Resources Inc. (BR).

This signals management's confidence of continuing high energy price. As you may know, to be a good investor, we need to buy low and sell high. If Conoco is buying Burlington at today's relatively high valuation, management must have thought that oil price will go up even higher to justify the purchase. For your information, Burlington Resource has risen 500 % in a span of four years since 2002. And now, they are getting a bought at an even higher price.

Recent years has been a boon to oil producing companies such as ConocoPhillips. Profit was at all time high of $ 8.13 Billion in fiscal year 2004. This year, profit already topped $ 9.85 Billion in the first nine months of the year. Analysts expect Conoco to book profit of $ 12.9 Billion this year. Therefore, buying Burlington at $ 30 Billion would look like pocket change considering the high profits reaped by Conoco.

Meanwhile, Burlington Resources is not a one trick pony either. It is expected to produce a profit of $ 2.5 Billion for fiscal year 2005. It might produce even more next year considering that natural gas just hit an all time high this month. For 2006, Burlington is expected to book a profit of $ 2.96 Billion, an 18 % increase over 2005 profit.



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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Burlington Resources Inc. (BR) or any other securities.

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