Forget the debt crisis in Europe and elsewhere – the world's biggest (and richest) oil companies are going shopping.
No, I don't mean they're buying Christmas gifts early. They're shopping for small oil exploration and development companies.
And if you know what companies are on their list, you give yourself a great chance to double you money in a matter of months.
Proof: my boss Ian Wyatt nearly doubled his money along with his $100k Portfolio subscribers on Brigham Exploration (NYSE: BEXP).
Another oil company in his Top Stock Insights portfolio, Complete Production Services (NYSE: CPX) saw a 29% gain in one day.
These types of big gains are only made possible when larger oil companies buy out the smaller company. And of course, you won't ever see large oil company double overnight either.
In Brigham's case, it was the giant Norwegian oil company Statoil (NYSE: STO). They paid a 20% premium over Brigham's share price for the privilege.
Mid-size oil company Superior Energy Services (NYSE: SPN) bought CPX for about a 29% premium.
So if you're interested in making big gains in the oil sector, you need to have a list of small exploration companies that sell at a fantastic discount to their oil reserves.
Now… that's obviously easier said than done.
But the clue to figuring out which companies may be taken over next lies in the premiums that these big oil companies pay.
Why pay 20-29% more for a small oil company than you have to?
Well, the first reason is to expedite the takeover. A generous takeover bid is more likely to be accepted by the majority shareholders.
But the real reason is because these big oil companies have crunched all the data and they've come to the conclusion that they can still swing a significant profit by paying more than they have to.
Otherwise, they wouldn't make the deal.
The secret lies in the fact that big oil usually knows more about the oil production potential of these companies than the market does.
That's because the market mostly follows the estimates and guidelines of the SEC. Now, I'm sure the SEC is filled with smart folks, but not many of them are oil experts. Their rules and regulations are designed to create huge safety buffers and they basically make it impossible for oil companies to overstate their reserves in their official numbers.
If you're oil savvy though, you can figure out that SEC margin of safety for each company.
Sometimes it's tiny. If a company is already in production, there's really not much of a difference between real reserves and estimated reserves.
But if a company isn't yet in production, or if they only have a small amount of production, then it's likely that there's a significant buffer.
For example, according to official SEC filings tiny oil development company Oilsands Quest (AMEX: BQI) has ZERO proved reserves.
To the average investor, that means no income, no growth and no reliability as a long term holding.
But if you dig a little deeper and understand BQI's geology and can understand the likelihood that some of the company's 466 drilled wells will be productive – then you can confidently buy this stock, even at a premium.
I'm not saying BQI is the next takeover target – it's just an example.
One company my boss Ian is excited about as a potential takeover is LNG Energy (TSX: LNG). It trades on the Toronto Stock Exchange, and it develops natural gas reserves in Europe and South East Asia.
This company currently has potential gas reserves exceeding 7.2 trillion cubic feet. At today's natural gas prices, that's approximately $28 billion worth. Of course, according to the SEC, this company has no gas. And so LNG sells for less than $50 million.
Granted, LNG doesn't have total ownership of this reserve, but if even a fraction of this potential gas reserve comes into production, it would be a huge payday for the company.
Today, Ian recommends buying this company to his Small Cap Investor PRO subscribers. And with that much potential gas sitting on the table, it wouldn't be surprising to see LNG as a takeover by one of the many big oil companies that are shopping today.
Keep your eye on this company.