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Author: healthpicker One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1071  
Subject: FCX back in the Oil and Gas business Date: 12/5/2012 5:16 PM
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Just read your article and have to agree with you completely. However playing devil's advocate isn't there some positives to this move.
BHP have gone down this road of diversification.
The Davy Jones well problem seems to support your bail out theory and the Board memebers overlap is quite astounding.
I have not yet seen any finacials that shows what a good deal this is for FCX shareholders but I can sure see why it may be convenient for the Borad members thenselves. Such a blatant move with significant potential for accusations of breach of fiduciary duty must have been considered by all those involved. So maybe there is some potential in this move but me if I had wanted to own stock in Oil and Gas I could have done so and if I did I would't have bought either of these.
So I keep coming back to this being good for the Board memebers and not good for the shareholders.


I fear only the Lawyers and the Bankers are going to winners here.

Regards
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Author: TMFGebinr Big gold star, 5000 posts Top Recommended Fools Old School Fool Supernova Phoenix 1
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Subject: Re: FCX back in the Oil and Gas business Date: 12/5/2012 5:32 PM
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Hi healthpicker,

Thanks for dropping by and your comments. There could very well be upside to this, especially with the purchase of Plains (and as you mentioned, BHP has done decently enough). Only time will tell, but I was certainly disappointed by this move. If I wanted (another) oil drilling company in this portfolio (I already have Transocean), I would have picked something else. :-)

Cheers,
Jim

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Author: BrianMotleyFool One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 853 of 1071
Subject: Re: FCX back in the Oil and Gas business Date: 12/7/2012 2:47 AM
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>> Thanks for dropping by and your comments. There could very well be upside to this, especially with the purchase of Plains (and as you mentioned, BHP has done decently enough). Only time will tell, but I was certainly disappointed by this move. If I wanted (another) oil drilling company in this portfolio (I already have Transocean), I would have picked something else. :-) <<

Not defiending the PXP-FCX deal here, which I agree, smells fishy. Week-old-washed-up-on-the-beach-fishy.

But I do need to comment on the comparison above. Transocean is a contract deepwater drilling company. Plains is an operator. Very different businesses, and they cannot be easily compared. Both companies will have some stock price correlation to oil prices, but there are nuances. PXP will correlate nearly linearly to oil prices - as WTI fluctuates, so to does the value of the barrels they sell. Transocean, on the other hand will have a much weaker correlation at high oil prices. As long as oil is above a threshold value, operators will keep drilling, and Transocean contracts will be plentiful. If oil prices are to decline precipitously, then operators will suddenly stop drilling, Transocean will see contracts dry up, and their value can fall steeply, and much more so than operators since operators, obviously, have some continuing cash flow even at very low oil prices.

Futhermore, it does bear mentioning that PXP recently closed a deal to buy significant BP deepwater GOM assets for $5.5 billion - a very good value. With proper development, PV of these assets could be as much as $10B, and the FCX cash will help with development. So I don't think the Plains acquisition was bad, necessarily. The MMR acquisition is a different story...

Brian

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Author: TMFGebinr Big gold star, 5000 posts Top Recommended Fools Old School Fool Supernova Phoenix 1
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Subject: Re: FCX back in the Oil and Gas business Date: 12/7/2012 7:14 AM
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Hi Brian,

Thanks for your points.

When I looked at both MMR and PXP, the latter clearly was the better company. I knew BP had sold some property rights in the Gulf, but hadn't connected it to Plains and this deal, so thanks for that, as well.

If FCX had to get into the oil business, getting Plains was probably a good move. What really bothered me was the apparent self-dealing in coupling that with MMR.

Cheers,
Jim

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