Merger Activity May Heat Up Oil Sector.

I bolded one line, make of it what you will. A piece of a report from Bear Stearns on the oil sector.

Bear Stearns & Co.
383 Madison Ave.
New York, NY 10179
(Tel) (212) 272-2000

MARCH 7 –

"We believe the oil industry is about to go through a period of heightened acquisition activity.
Companies are flush with cash, commodity prices are high, interest rates are low, and corporate raiders are agitating oil company managements.

The oil and gas reserves that underlie several oil companies' stocks can be purchased at prices below finding and development costs.

Our screens sift out possible acquisition targets. Unocal, Murphy Oil, Marathon could be takeover or restructuring candidates.

Unocal remains our top takeover pick. We have increased our year end price-target from $55 to $70 per share.

We have upgraded our rating on Murphy Oil from Peer Perform to Outperform with a price target of $120 per share.

Our rating on Marathon Oil is upgraded from Underperform to Peer Perform with a price target of $55 per share.

We remain cautious in our oil price outlook and believe that prices are likely to fall sharply.

In our opinion, oil companies would be better off returning free cash flow to shareholders.

However, we suspect some company managements will not take our advice. We think consolidation will be the next wave in the oil industry."

Frederick P. Leuffer