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Expect a Wave of Oil Mergers

Jim Cramer
Jim Cramer
The Street.com
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The need to show growth in 2008-2012 will cause deals now.

When will we see a premium for those oil companies that have reserves and a big discount for those that don't? I believe that's behind the thinking of a lot of these big deals in the oil patch. I believe that management at these firms is worried that their stocks are trading like call options with no underlying equity, the underlying equity being the reserves in the ground.

That makes it hard to pay up for the out years of earnings. I mention this because the company that has spent the most time thinking about this and doing something about it is Chesapeake, and it seems to be going back to the higher multiple that blessed it before the Appalachia acquisition. Similarly, Ultra's got that extreme multiple that shows me it, too, is being rewarded for having a lot more places to drill than it is drilling.

If that's the case and we are going to see premiums given to those that have, you can expect...

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