Energy Stock Winners: Cabot, EXCO

Atlas Energy starts Monday on a high, extending an energy stock rally from Friday on the latest M&A action in Marcellus shale energy exploration companies.
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(Energy stock winners story updated from April 9 for early Monday rally in Atlas Energy shares)

HOUSTON (

TheStreet

) -- Shares of Marcellus Shale natural gas energy companies rallied on Friday after India's Reliance Industries paid an implied price of $14,000 per acre for a Marcellus natural gas joint venture with

Atlas Energy

(ATLS)

.

Will the short-term spike from the Atlas Energy-Reliance deal serve as a catalyst for these natural gas energy stock shares to return to 52-week highs, or will the low price of natural gas continue to serve as a drag on these stocks?

On Monday morning, Stifel Nicolaus raised its price target on Atlas Energy to $53, from $40. Atlas Energy shares started trading on Monday at a 52-week high of $39, and were up at the market open by 5%, extending the big rally from Friday.

Energy stock shares of

Cabot Oil & Gas

(COG) - Get Report

and

Range Resources

(RRC) - Get Report

traded at unusually high volumes last Friday as a result of the Atlas Energy deal.

>> Who Owns Cabot?: T. Boone Pickens

Range Resources, in particular, is synonymous with the Marcellus, and its acreage is located relatively close to the acreage in the Atlas Energy-Reliance joint venture.

The Marcellus Shale, also referred to as the Marcellus Formation, occurs in the subsurface beneath much of Ohio, West Virginia, Pennsylvania and New York. Small areas of Maryland, Kentucky, Tennessee and Virginia are also underlain by the Marcellus Shale.

Trading in the natural gas energy stocks was muted early on Monday, with the exception of Atlas Energy shares.

Range Resources had the biggest gain on Friday in terms of increase in share price, with a gain equal to approximately $2, to a close of $50.28 on Friday. Range Resources 52-week high is $60.13.

EXCO Resources

(XCO)

, which also traded at more than twice its average daily volume on Friday, added $1 in share price on the Atlas Energy news, and closed at $20.57 on Friday -- EXCO's 52-week high is $22.51.

Ultra Petroleum

(UPL)

gained almost $1.50 to a closing price of $48.97 on Friday -- Ultra Petroleum's 52-week high is $57.21.

>> Who Owns UPL?: Trafelet

Atlas Energy announced early on Friday that India's Reliance Industries was paying $1.7 billion for a 40% joint venture in its Marcellus acreage, the price tag that implied the $14,000 per-acre value.

On Monday morning in early trading, the natural gas energy stocks that had received a boost from Atlas Energy were flat to marginally negative to begin the week's trading.

Still, at least some energy stock analysts believe there is reason to be positive on the natural gas trade.

"There's nothing like M&A to put a floor on valuations," said Dan McSpirit, analyst at BMO Capital Markets.

In other deal action in the oil-and-gas sector,

SandRidge Energy

(SD) - Get Report

last week agreed to acquire

Arena Resources

(ARD) - Get Report

, and

EOG Resources

(EOG) - Get Report

announced earlier this week that it would divest some natural gas assets.

Both

EOG Resources and SandRidge are tilting strategic focus to oil exploration.

BMO's McSpirit said with all the deal-making related to diversifying away from gas and towards oil, the fact that a relatively small producer like

Carrizo was willing to issue common shares to chase higher oil prices could be an indication that the strategy has played itself out, and that oil asset values may have peaked. "You have to ask yourself, 'How crowded is this oil trade?'" McSpirit said.

Fadel Gheit, an analyst at Oppenheimer & Co., said that he's believed for some time that oil is over-inflated and gas prices overly depressed.

That natural gas prices have reached more than $4 after the higher demand winter season could be a sign that worst is over.

"The question is how long will oil remain at a 200% premium to gas?" asked Oppenheimer's Gheit. "I would accept a 100% premium for oil over gas, but 200% is outrageous."

Goldman Sachs issued a bullish report Friday on the outlook for natural gas. Thought it didn't say anything that other research firms haven't already been saying, Goldman's brand could help push investors back into the gas trade, Gheit said.

"My explanation of what has happened is not just about the Atlas deal, although any positive news from the Marcellus tends to drive up the stocks. I think there's a light at the end of the tunnel with gas prices," Gheit said, though he cautioned that "the tunnel may be longer and the light a little dimmer than some expect."

BMO's McSpirit expects an improved supply-demand balance. "There's been lots of pressure on these natural gas stocks in a short amount of time, and buyers have begin to surface," he said. "That's what's happening today. It gets to the point where the market asks, 'What is not known that is a negative here?'"

Fundamentals may remain weak for natural gas, but not as weak as recent trading suggests, the analyst added.

-- Reported by Eric Rosenbaum in New York.

RELATED STORIES:

>>Energy Winners: Gulfport Energy

>>Energy Winners: SandRidge Energy

>>Energy Winners: Atlas Soars on JV

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