Energy and other M&A ?3

09:40 01-Sep-20

Schlumberger is gifting its OneStim fracking business to Liberty Oilfield Services in exchange for 37% of the company.  In the current market environment, this will likely be seen as positive for ERII, since Liberty's CEO has spoken positively about VorTeq.  The increased fleet size can't hurt the prospects, but the way the deal was done is akin to Vodafone giving up on India.  Vodafone has followed that up with the official merger of its tower operations, as well.

A better argument in favor of Energy Recovery might be Buffet's purchase of Japanese (predominantly energy) trading firms.  Some are taking this as a sign that energy will rebound, and it will.  However, I note that it need not come back in the same form for Buffet's bet to succeed.  Indeed, investing in trading firms implies coming change, and I see the move as primarily a bet against the dollar.  One subscriber has already pointed the tailwind to BGC, and he's not off base.

However, I've always said that while studying his history and evolution can be of value, what Buffet does today should be of little concern to most investors.  Berkshire now has capital levels that require investments on very long time frames and are very limited by their size and liquidity.  Most of us wishing to bet on the transition of energy markets can allocate a meaningful portfolio slice toward Xebec, which has acquired another firm to expand  its service network to British Columbia for $4.5M.  Berkshire's size means it cannot even invest meaningfully in the likes of Clearway, which would be an energy transition option if you disregard my anti-dollar thesis even with €/$1.20.

That's another reason to disregard MX, which is up this morning on the finalization of its Fab 4 sale.  Similarly EBIX has long been a value by trailing metrics, but not when we look at India's current road and see that investment there has fallen by almost half.  The transitions being accelerated by the pandemic will still be playing out for another year or two, and those in energy, technology and economies are going to be playing out for even longer.  Invest with your own individual parameters in mind, rather than following others.