Late yesterday we learned that Occidental Petroleum (OXY) is buying Vintage Petroleum (VPI) for $20 cash plus 0.42 OXY shares. This represents a huge premium (33%) over yesterday's closing price and 12.5 times VPI's 2006 estimate of $4.13 per share. This deal very much backs up my contention yesterday that energy multiples are too low.

Take Plains Exploration (PXP) for example, and their 2006 consensus expectation of $4.44 in EPS. If investors put the same 12.5 multiple on PXP that OXY was willing to pay for Vintage, you get an implied buyout value of $55 per share for Plains, about 50% higher than its current share price.