ConocoPhillips is negotiating to purchase Burlington Resources Inc. in a huge $30 billion deal in a big bet that natural gas supplies will remain tight and higher prices the norm for the forseeable future. Burlington stock has been a hot item this year, trading at $40.40 a share in January and closing this past Friday at $76.09. ConocoPhillips shares closed Friday at $63.07 a share, giving it a hefty market cap of $87.5 billion. Although negotiations are still ongoing, a deal could be announced by the two Houston-based companies later this week.
Burlington Resources is one of the most successful companies developing natural-gas production from unconventional fields where the gas is embedded in rocky formations that make drilling difficult, expensive and dangerous. Inasmuch as natural gas is a relatively clean-burning fuel that heats a majority of U.S. homes and is widely used in industry, rising prices and improved technology are making unconventional natural gas fields much more attractive to energy companies that are increasingly desperate to increase reserves. About 80% of Burlington’s assets are related to North American natural gas fields.
The impending deal highlights conflicting views in the oil and gas industry as to whether such deals are good buys. On one hand, some traditional voices such as outgoing Exxon Mobil Corp. CEO Lee Raymond take the position that current high energy prices reflect a business cycle and that, as a result, producing and reserve assets are over-priced during such cycles. On the other hand, there is a growing faction in the oil and gas industry that views rising commodity prices as a fundamental shift in the market resulting from growing world-wide demand and slowing growth in supplies. Thus, that view contends that even expensive deals for companies with solid asset portfolios are a good bet, which was the rationale for Chevron Corp.’s $18 billion acquisition of Unocal Corp. earlier this year.

Inasmuch as big-time college football is to the National Football League as triple A minor league baseball is to Major League Baseball, a team’s branding rights can become an important asset. Along those lines, this interesting Austin American-Statesman article reports on the surge in royalty income that the University of Texas is enjoying from its athletic teams’ recent successes:

The Longhorns’ Rose Bowl victory over Michigan in January and the baseball team’s national title in June helped boost University of Texas merchandise royalties 29 percent to $4 million in the last fiscal year, . . . So far this year, [UT] has collected more royalties than any of the 200-plus schools affiliated with the Collegiate Licensing Co., which coordinates licensing for most major universities.
To license its trademarked logos, UT charges 8 percent of a product’s wholesale price. If a $20 Longhorns T-shirt has a wholesale price of $10, UT would get receive 80 cents. It might not sound like much, but consider that retail sales of collegiate merchandise topped $3 billion last year, according to Collegiate Licensing.
Add a football championship to that, and last year’s $4 million could end up looking like a paltry sum.

The article goes on to note that UT’s annual royalties from merchandise sales had fallen to a mere $600,000 as of the end of the John Mackovic era, which suggests that UT’s considerable investment in Mack Brown has been pretty darn savvy, after all.

You know it’s been a bad day at the office when a typo costs your company over 27 billion yen, which equates to a cool $225 million.
Here’s what happened. A Mizuho Securities trader (ex-trader?) wanted to sell one (1) share of J-Com Co. on Thursday morning at 610,000 yen. However, the trader typed the trade in to sell 610,000 shares at 1 yen. Although J-Com was debuting on the Tokyo Exchange with approximately 15,000 shares being offered, the Tokyo Exchange went ahead and processed the sale of J-Com, even though the sale was approximately 41 times the number of outstanding shares. The parent company of Mizuho Securities (Japan’s second largest bank) publicly stated that it would fully back the losses from the erroneous trade (how’s that for a cost of doing business?), which could wipe out Mizuho Securities’ first quarter profit of 28 billion yen (or $233 million). The Times Online article on the trade is here.
And lest we think that only anonymous traders make mistakes, this Andy Kessler/Wall Street Journal ($) piece reminds us that even the Oracle of Omaha is not infallible:

Shrines to Warren Buffett now outnumber Elvis altars. Which makes the Oracle of Omaha’s very public bet against the dollar going into this year even more painful for his copycats. Berkshire put on $21 billion in contracts with a value of $1.8 billion and cited “deep-rooted structural problems” and the need for changes in trade policy and dollar declines. With the dollar up 16% against the euro and yen, the investment was down $897 million as of October. So was his stock, until he was bailed out by three gals, Katrina, Rita and Wilma, who popped insurance rates. Can he repeat that little trick next year?