NEW YORK (TheStreet) -- Market volatility isn't going to force a company to sell, but it may make independent exploration and production companies more amenable to modest premiums from deep-pocketed buyers.
"I think the volatility is driving some sellers to the table," said Curtis Trimble, analyst at MKM Partners. "Deeper-pocketed players that can build into volatility probably are incrementally more attractively positioned than smaller companies that are built on acreage that, likely, will have to come to the capital markets to fund much of their development capital."
This argument doesn't mean, though, that the traditional energy M&A drivers aren't in the equation. Foreign buyers are still anxious to acquire North American assets, and liquid-rich assets in particular are attractive. Both of those trends are implicit in the Statoil acquisition of Brigham Exploration. Companies with substantial production and a large undeveloped acreage base in at least one emerging resource play are in the sweet spot, too, but the pressure may be on some of the independents to reach their exit strategy more quickly, and less richly, than they would have thought just six months ago.To gauge how swiftly premiums can narrow in the space, analysts pointed to the deal in July when BHP Billiton (BHP) acquired Petrohawk (HK). Tim Rezvan, E&P analyst at Sterne Agee, noted that Petrohawk sold out at the top of the market in early July and got a 65% premium. Brigham, on the other hand, sold out after a small bounce from recent lows for a 19% premium. "Both companies were acquired because they had a large presence in a desired liquids shale play. Both companies lacked the ability to do a full-scale development plan nearly as quick as a deep-pocketed integrated ... but I think the recent volatility may have forced some independents to adjust to a new valuation level," Rezvan said, though he stressed that he can't comment on Brigham's motivation specifically without active coverage of the company. Kevin Cabla, energy analyst at Raymond James, said the recent deals and the timing of the deals show that management of independent E&Ps are ready to get out and not willing to "wait on the market." Yet he cautioned in the wake of Brigham's deal that names like Cabot Oil & Gas (COG) and Range Resources (RRC) are trading at takeout premiums well above the average takeout multiple.
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