Fresh M&A Wave May Wash Over Gulf E&P

While Hurricane Ernesto's strong winds don't appear headed to the Gulf of Mexico, another sort of wind blew into the exploration business Monday, a strong merger wind.

In a move that surprised just about everyone, Woodside Petroleum, an Australian-based firm with interests in the Gulf, offered $23 to $24 per share for control of Energy Partners(EPL Quote), a New Orleans exploration and production business with strong ties to the Gulf of Mexico.

The offer is certainly intriguing to Energy Partner shareholders, who would realize a 33%-plus premium based on Friday's close. And the deal should be intriguing to the company's directors, sans one minor detail: The company is in the final stages of completing its own merger, purchasing Stone Energy(SGY Quote), another exploration company with a focus on the Gulf of Mexico.

Therein lies the rub. Woodside consummating a marriage with Energy Partners would require EPL to leave Stone at the altar, literally. Woodside has conditioned its offer on Energy Partners' rejection of the Stone merger.

Stone-Cold Shoulder

Energy Partners' decision to bid for Stone did not come lightly. In fact, Stone was in the process of working through a merger with Plains Exploration(PXP Quote) when Energy Partners came a-calling. Stone considered both deals carefully, and only after EPL agreed to front the $43 million-plus breakup fee due Plains did Stone agree to walk down the aisle with Energy Partners.