(Chevon, Atlas Energy, natural gas M&A story updated for BMO Capital comments)

NEW YORK ( TheStreet) -- You know the drill: a major oil company buys an independent natural gas producer and the proverbial M&A floodgates are set to open in the energy M&A game.

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Indeed, the energy market is abuzz with M&A chatter after Chevron ( CVX) announced its $4.3 billion purchase of Atlas Energy ( ATLS) on Tuesday. The usual suspects among the independent natural gas stock plays have rallied on Tuesday and experienced heavy trading volume, among them, Range Resources ( RRC), Cabot Oil & Gas ( COG), and EQT Corporation ( EQT).


An investor can add to that list Petrohawk Energy ( HK), up 6% on Tuesday on heavy trading volume.

It can always be said that the latest M&A deal puts a floor value on assets, but the Chevron-Atlas deal doesn't necessarily mean that other independents will be rushing to wave the white flag in the natural gas market.

Analysts described the deal as a "take the money and run" decision by Atlas Energy, receiving a premium to current share price of 33%. Yet Atlas received a per-acre value of $4,000, and that's not likely to be anywhere near the expectations of a company like Range Resources for its acreage.

In fact, back in April there were a series of deals signed in the Marcellus shale region valuing assets at $15,000 per acre -- Chevron has purchased 486,000 Marcellus acres from Atlas. At that time, Range Resources management was quoted by analysts as saying that value of its assets might double to the level of $30,000 an acre. It's clear that Range Resources represents the case of a long-rumored M&A target which may hold out for much longer based on the perceived value of its assets than Atlas, analysts say.

Several analysts that cover Atlas were caught off guard by the deal, and ultimately concluded that while the share premium made the deal understandable, the price Chevron was paying for the assets made Chevron the real winner in the deal. Analysts surprised by the deal pointed to the fact that Atlas had set up a joint venture with India's Reliance Industries that took care of its immediate funding needs, and was attractive in terms of the ongoing revenue stream provided to Atlas Energy. "Atlas wasn't under any pressure to sell, and I thought they would have held on longer," said one energy analyst.

Phil Weiss, analyst at Argus Research, said that the deal makes a lot of sense for Chevron from the standpoint of getting into the unconventional asset business, like Exxon did last year through its XTO Energy deal, and ultimately being able to leverage that expertise for a global portfolio of unconventional asset plays. Yet Weiss also agreed that most natural gas companies should be holding out as long as financing hasn't completely dried up, as prices in the natural gas market won't allow them to command high enough deal values.

"If I was in the position of a natural gas company, I would try to hold out unless I needed access to capital. I tend to think the winner here is Chevron," the Argus analyst said.

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Jason Bouvier of Scotia Capital said he doesn't expect a spate of deals in the nat gas space for at least 12 months to 18 months, and in particular for companies he covers like Petrohawk and Range Resources.


"Petrohawk and Range are takeout names, and they are highly leveraged, but it's unlikely that now is the time. I expect both to slug it out for the next year to year and a half," the Scotia analyst said.

Bouvier noted that Petrohawk still has more than $1 billion left in a credit line that it can tap, and even though its debt-to-cash-flow ratio makes it a high-risk company, it already has a plan in place to manage cash flow and make asset sales without using up its additional credit. The Scotia analyst said he thinks Petrohawk assets would be worth at least double the Atlas valuation.

"These companies are built to sell, but are unlikely to sell in a sub-$4 natural gas environment," Bouvier said.

The Scotia analyst said when speaking about the April Marcellus deals and the Range Resources management comment that it would continue to grow its assets to $30,000 an acre: "Their expectations are quite high; $15,000 an acre was the high point and the Range guys were saying their assets had much more value than that." Bouvier said he doesn't necessarily expect numbers like $30,000 an acre, but he does believe that in a low natural gas pricing environment, the divide between potential acquirers and sellers will continue to be an impediment to deals, and the Atlas decision won't serve as the proverbial floodgate.

Argus Research's Weiss explained that the problem for many of the independents is if prices don't rise in the natural gas market. Unless the usual project funders -- who have already invested heavily in natural gas joint ventures and asset purchases -- want to double dip, capital will dry up for the independents and they will be forced to sell out.

"Lots of stuff lately is telling me that eventually access to capital in the natural gas space dries up, so I won't be surprised if we see more deals, but it's going to take longer. Conditions haven't gotten bad enough yet," Weiss said.

Dan McSpirit, analyst at BMO Capital Markets, more or less agreed with this assessment. "There's no sense of urgency for these companies, however painful it may be to fight the fight of being a nat gas producer at these prices," McSpirit said, adding, "I'd be surprised if it starts a trend."

The BMO analyst said financing markets remain open, and companies are well capitalized. He expects to see more JV deals and individual asset sales, which are trends already pronounced in the sector, particularly the sale of non-core assets to fund higher margin growth operations. "That won't stop, but pure corporate M&A as a function of a willing seller in the nat gas space ... unless they are throwing in the towel, I don't see that happening.

McSpirit said all the companies in the space are going through a deliberate process of aligning capital spending with cash flow, and the abundant liquidity in the market means that living with natural gas at a price below $4 may be tough living conditions, but it's not yet an existential crisis for the sector.

-- Written by Eric Rosenbaum in New York.

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