Oil and Gas Stock Roundup: M&A, Analysts Fuel Oil Stocks This Week

By Matthew DiLallo Markets Fool.com

Image source: Getty Images.

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What happened

Crude prices eked out a slight gained for the week, rising 0.1% and closing at $51.42 per barrel. That relatively calm oil market meant that oil stocks needed other catalysts to fuel big moves this week. Those arrived in the form of another major M&A deal, as well as several bullish analyst notes, which, according to data fromS&P Global Market Intelligence, fueled the biggest stock moves in the energy market this week. Leading the way wereClayton Williams Energy (NYSE: CWEI), Sanchez Energy (NYSE: SN), Basic Energy Services (NYSE: BAS), and Emerge Energy Services (NYSE: EMES).

CWEI Price data by YCharts.

So what

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Sanchez Energy continued its torrid run after last week's announcement of a strategic joint venture with the Blackstone Group to acquire Anadarko Petroleum's Eagle Ford Shale assets. The deal will enable Sanchez to more than double its current output over the next 18 months thanks to the associated production, as well as its ability to accelerate drilling activities.

Analysts thought that the $2.3 billion deal was a bargain price, leading several to either upgrade the stock, or reiterate their bullish calls. Investors seemed to agree, evidenced by the fact they have driven Sanchez Energy's stock up more than 50% since the announcement.

Deal news also fueled Clayton Williams Energy's rally this week after it accepted a takeover offer from Noble Energy (NYSE: NBL). The cash-and-stock deal came at a 34% premium to Clayton Williams' stock price before the announcement, valuing the company at $2.7 billion.

In agreeing to this transaction, the company's shareholders not only get some cash right now, but also will gain access to Nobel's larger portfolio and clear growth prospects. In fact, Noble Energy now expects to grow production 11% to 15% annually over the next four years, thanks, in part, to the addition of Clayton Williams.

Image source: Getty Images.

Meanwhile, analyst upgrades were the primary fuels driving the double-digit rallies in Emerge Energy Services and Basic Energy Services this week. In Emerge's case, Goldman Sachs upgraded it from neutral to buy, while setting a $20 price target, which, at the time, implied 36% upside. Driving that upside was a view that the frack sand market is tightening more quickly than expected.

Meanwhile, Deutsche Bank upgraded Basic Energy Services from hold to buy while setting a $45 price target. The bank believes that the oil-field service company emerged from bankruptcy with a more sustainable cost structure and stronger balance sheet, which should enable it to succeed in an improving market environment.

Now what

There's been a notable rise in optimism across the oil sector in recent months. This trend has boosted the confidence of oil executives, causing them to open their wallets for big M&A deals and to accelerate drilling activities. That is flowing down and improving the market conditions for oil-field service companies, which has analysts growing bullish on their prospects. This optimism could continue to rise if oil prices remain stable, though investors need to be on guard because the market is still in a fragile state and could quickly sour if crude prices head south.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.