Don't Bury Conoco-Burlington Yet

This column was originally published on RealMoney on Dec. 15 at 10:12 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

I received a lot of questions about Bob Marcin's comments about ConocoPhillips(COP) Wednesday.

While the argument can be made that Conoco overpaid for Burlington(BR) assets, the same argument has been made for more than two-thirds of the energy M&A transactions made in the past two years. The argument against those deals has been that we were close to the top of the cycle and that the deals wouldn't work as commodity prices were bound to come in. Those critics were wrong.

That's not to say that deals at today's levels hold the same level of risk as deals two years ago.

Price certainly suggests there is more risk, but whether this transaction works depends not only on commodity price but also on Conoco's ability to work the Burlington assets more efficiently. While Burlington has a bevy of mature properties, there is plenty of potential portfolio growth: Canada, Barnett Shale and the deep Bossier all hold significant growth potential. In fact, if the deep Bossier works as it could, it would be a game changer for a company like Burlington and will become a focus of ConocoPhillips.

And, let us not forget the political motivation here. It will be darn hard for Congress to come back and gripe to ConocoPhillips for not reinvesting in the business -- they just spent $35-plus billion to reinvest. As I noted earlier this week, this motivation could lead to more deals come 2006.

Great deal? No. Good deal? Time will tell.

In the short-term the deal looks expensive. So, too, did the deals Chesapeake(CHK) was doing 18 months ago when it was paying about $1.30+ for reserves in the ground. Now, you would do those deals all day long.

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