The Next Nat Gas Acquisition Will Be...?
NEW YORK (
) -- In the wake of
Chevron's
(CVX) - Get Report
$3.2 billion cash purchase of
Atlas Energy
(ATLS)
, the usual suspects have surfaced from the ranks of the independent natural gas producers as the next takeover targets for the oil majors.
Last year, the energy sector M&A chatter was stoked by
Exxon Mobile's
(XOM) - Get Report
acquisition of
XTO Energy
. At that time, an investor poll conducted by
TheStreet
indicated that
Chesapeake Energy
(CHK) - Get Report
was being seen as the biggest takeout target.
Chesapeake Energy
(CHK) - Get Report
, though, is an unlikely straight up M&A play. It certainly has balance sheet issues, but it has so many joint ventures that include voting interest for partners, a complete takeover would be difficult, according to analysts. Also, Chesapeake Energy has gone in the direction of selling off pieces of its operations to fund operations and that's likely to remain the strategy, as analysts don't see Chesapeake CEO Aubrey McClendon as the type of personality who will part with his company easily.
Below are four natural gas plays that saw elevated trading on Tuesday after the Chevron-Atlas Energy deal was announced and which always figure in rumors about independents over which the oil majors salivate.
Range Resources
EQT Corporation
Cabot Oil & Gas
Ultra Petroleum
Stifel noted in a research note on Tuesday morning that these stocks have high exposure to Marcellus acreage per share. While less than 50% of the acreage in the Atlas deal was Marcellus -- 486,000 acres from a total of more than one million acres -- analysts say it's the Marcellus acreage that Chevron was buying. Additionally, Range Resources, Cabot and EQT have not gone down the JV or partner path, making them more attractive in terms of future sales.
The Next Nat Gas Acquisition Will be...? |
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Petrohawk Energy is another natural gas play always making the short list of takeover targets among the independent oil and gas producers.
Of course, investment bankers are talking up the nat gas acquisition story as they are wont to do, making the case that the highly levered independents in the space can't outlast balance sheet pressures and low natural gas prices. Also, as more of the potential joint venture partners are already locked up in deals signed throughout 2010, like a Reliance Industries from India or any one of a number of Chinese state-run energy companies, there's less money left in the global war chest to fund drilling ad infinitum without wholesale takeouts.
There's little doubt that the oil majors aren't done with their buying spree. An annual report from the International Energy Agency released on Tuesday noted that the oil majors are scrambling to turn themselves into gas producers as the age of cheap oil ends and a "golden age of gas" ensues.
>>Energy Watchdog Calls for End to Fossil Fuel Subsidies
Yet the pricing in the Chevron-Atlas deal might not meet the expectations of many among the usual suspects in the independent oil and gas space.
>>Don't Expect Nat Gas M&A Flood
The Chevron purchase of Atlas Energy worked out to a per acre rate of under $4,000. Some analysts discount the purchase of the non-Marcellus assets, and say Chevron paid $8,000 an acre for Atlas' 486,000 acres in the Marcellus Shale, with the remainder being a "throw-in."
Even at the price per acre of $8,000, the pricing Atlas received was well below what had been featured in other recent Marcellus deals. In April, two deals were valued at $15,000 an acre, and more generally, Marcellus plays have been fetching at least $10,000. So where Atlas was keen to "take the money and run" other independent oil and gas producers may hold out longer.
For this reason, while it can always be said that the latest M&A deal puts a floor value on assets, the Chevron-Atlas deal doesn't necessarily mean that other independents will be rushing to wave the white flag in the natural gas market.
The Next Nat Gas Acquisition Will be...? |
Place Your Energy Bet |
Range Resources, for example, had commented back in April, when there were a series of deals signed in the Marcellus shale region valuing assets at $15,000 per acre, that its assets might double to the level of $30,000 an acre. Range Resources has the second-highest acreage in the Marcellus among independents, with 1.3 million acres, after Chesapeake Energy. EQT has roughly 500,000 acres in the Marcellus shale.
According to a note from RBC Capital Markets, based on the Chevron deal, Range Resources is worth $45 a share. That's not much of a premium considering that Range Resources 52-week high is above $54 and it's currently trading near $43 on Wednesday.
The independent oil and gas producers are "built to sell" but they haven't necessarily been built to sell immediately, and in particular with recent sub-$4 natural gas prices offering an opportunity for majors like Chevron to buy on the proverbial cheap.
In any event, the latest energy sector M&A chatter starts the guessing game for investors hoping to see a stock premium, like the 37% premium offered by Chevron to Atlas Energy shareholders, reflected in their stock bets sooner rather than later. And it begs the question:
Which independent oil and gas company are you placing your bet on to be the next acquisition play?
Take the poll below to see the consensus of the investors of
TheStreet
.
-- Written by Eric Rosenbaum in New York.
RELATED STORIES:
>>Don't Expect Nat Gas M&A Flood
>>Chevron Paying $4.3 Billion for Atlas
>>Playing the Nat Gas Juggernaut
>>The Next Atlas: Energy M&A Video
>>Energy Watchdog Calls for End to Fossil Fuel Subsidies
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