With oil at or near record prices, some major investors have quietly repositioned their assets to take advantage of low valuations in the oil sector.

The last two weeks of December brought a wave of consolidation in the oil sector as hedge funds and large investment banks made investments in beaten-up oil stocks. These deals, which were announced during a typically slow time of the year, suggest it's wise to seek out any other undervalued names in the space.

On the final day of 2007, Delta Petroleum ( DPTR) announced that Kirk Kerkorian's Tracinda Corp. would invest $684 million in the company. The $19-a-share price for the 36 million Delta Petroleum shares represents a 23% premium over the stock's closing price the previous trading day. The deal gives Tracinda a 35% stake in Delta.

Delta Petroleum finished 2007 down about 18% despite rising crude prices. Clearly, Kerkorian sees value here longer-term. With Delta's assets in 15 states and undeveloped offshore oil in California, Kerkorian's investment will most likely be used to increase the number of rigs used.

Separately, on the very same day, Transmeridian Exploration ( TMY) said that current CEO Lorrie Olivier made a tender offer of $3 a share to take the oil and natural gas company private.

Transmeridian's principal assets are located in the South Alibel oil field in Kazakhstan. This oil field has estimated proven reserves of 72.9 million barrels of oil equivalent and 108.2 million barrels of probable resources.

On past conference calls management has been adamant about the company's reserves -- however, for some time the market has seemed to disregard this, causing a large spread between actual share prices and the price at which company management thought shares should be trading.

This recent offer suggests that the market has been wrong about Transmeridian. No one knows more about Transmeridian and its reserves than the CEO, who is leading this deal. Shares, however, are still trading well below the $3-a-share offer.

On Wednesday, Chesapeake Energy ( CHK) received a $1.1 billion infusion from UBS AG and Deutsche Bank's ( DB) DB Energy Trading. Under the deal, the firms will receive set quantities of natural gas over 15 years from Chesapeake's interests in more than 4,000 producing wells, with no production costs or production taxes.

Chesapeake's stock is trading near its 52-week high, but both UBS and Deutsche Bank saw value in the company's natural gas and oil assets. SunTrust Robinson Humphrey said the announcement "should have a minor positive valuation implication" on Chesapeake's stock. Chesapeake said it plans to structure similar deals for its mature properties this year and next "for further proceeds of at least $2 billion."

Let's also not forgot about National Oilwell Varco's ( NOV) bid for Grant Prideco ( GRP) a couple of weeks ago. The $7 billion-plus deal will result in the second largest independent driller in the U.S.

So with all of these deals in mind, let's take a look at two interesting small-cap energy stocks.

First is Evolution Petroleum ( EPM), which said last fall that its proven reserves surged by 270% to 1.7 million barrels of oil equivalent in its fiscal 2007.

The company has some cash, but the play here is its interest in the Delhi Field in northeast Louisiana. The Delhi Field is a carbon dioxide (CO2) enhanced oil recovery project headed by Denbury Resources that is expected to start producing in 2009.

Next up is Vaalco Energy ( EGY), a stock that finished 2007 down more than 30%. Vaalco has a super-clean balance sheet, great growth and a $20 million stock-buyback plan in place. This buyback plan represents 10% of the company's current market cap.

As always, you should check out Jim Cramer's Oil Stock Buy List. He has been bullish on this group and breaks down a few more names in this portfolio, including ConocoPhillips ( COP) and Transocean ( RIG).

It's also worth looking at T. Boone Pickens' portfolio. Pickens is considered by many to be the "King of Oil" and has been calling this move in oil for some time.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Evolution Petroleum, Transmeridian Exploration and Vaalco Energy to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for The Financial Times and the author of Trade Like a Hedge Fund, Trade Like Warren Buffett and SuperCa$h. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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