NEW YORK (Dow Jones)–Competitors of XTO Energy Inc. (XTO) traded higher Monday as investors looked for the next potential takeover target in the sector.
Early Monday, oil giant Exxon Mobil Corp. (XOM) announced an agreement to acquire XTO for $31 billion in stock, valuing XTO at a 25% premium to Friday’s closing price and boosting Exxon’s presence in the natural-gas industry at a time of low prices for the commodity.
Analysts at Tudor Pickering Holt called the acquisition a surprise and said the deal will “overshadow all else today and will reverse energy investor rotation out” of exploration and production stocks. They said the purchase could kick off a major consolidation trend as “majors tend to be lemmings around trends” like joint ventures and consolidation.
The analysts added that the next major targets could include EOG Resources Inc. (EOG), Southwestern Energy Co. (SWN), PetroHawk Energy Corp. (HK), Encana Corp. (ECA), Devon Energy Corp. (DVN), Chesapeake Energy Corp. (CHK) and Anadarko Petroleum Corp. (APC).
“The industry has been expecting this kind of consolidation for some time,” said Joan Dunlap, PetroHawk vice president of investor relations. “It is a signal in the right direction for resource style assets.”
Representatives from EOG, Devon and Chesapeake declined to comment, while Southwestern and Anadarko weren’t immediately available.
In recent trading, XTO soared 16% to $47.93, while Exxon slipped 4.1% to $69.87. EOG increased 5.6% to $90.83, and Southwestern climbed 7.4% to $44.51. PetroHawk increased 7.3% to $23.80, EnCana rose 5.5% to $29.80, and Devon grew 5.3% to $67.25. Chesapeake jumped 6.6% to $24.55, and Anadarko gained 3.3% to $59.91.
Other energy companies trading higher included Range Resources Corp. (RRC), up 8.6% to $47.11, and St. Mary Land & Exploration Co. (SM), up 4.4% to $34.70. Stone Energy Corp. (SGY) gained 2.5% to $18, and Quicksilver Resources Inc. (KWK) climbed 6.9% to $14.09. Cabot Oil & Gas Corp. (COG) jumped 9.7% to $42.04, Comstock Resources Inc. (CRK) rose 4.3% to $39.23 and Exco Resources Inc. (XCO) grew 6.9% to $20.48
Many oil and gas companies have seen profits decline as prices tumbled from last year’s peaks, potentially making it easier for large energy companies to take advantage of their weakened positions.
But Motley Fool senior analyst Joe Magyer said energy companies’ rising stock prices will prevent the deals from being as cheap and attractive as they were when stocks were hitting their lows earlier this year.
“For a lot of potential acquirers or suitors, some will be disappointed they couldn’t have gotten acquisitions any cheaper,” Magyer said.
Still, Magyer said people look to Exxon as the “gold standard” and its takeover of XTO could “signal to everyone else that this could be a good time [for acquisitions].”
The deal also puts to rest speculation about when Exxon, which hasn’t had a major acquisition since the merger a decade ago with Mobil, would take advantage of lower commodity prices pressuring smaller and debt-loaded companies in the oil patch.
While many market watchers believe Exxon’s takeover of XTO could signal consolidation in the industry, others said acquisitions may not be as widespread as believed.
Pritchard Capital Partners analyst Raymond J. Deacon said Exxon is unique among other major energy companies as it has a strong balance sheet with essentially no debt.
“I don’t think there are all that many companies with a balance sheet that would allow them to buy somebody like EOG or Devon,” Deacon said.
But he added some of the smaller energy companies, such as Range Resources, could be attractive targets as the larger companies look to increase exposure to the Bakken, Hayneville and Marcellus Shales. He said Cabot Oil & Gas, Comstock Resources and Exco Resources also could be potential targets based on their exposure to the various shale fields.
A representative from Exco declined to comment, while representatives from Range Resources, Cabot Oil & Gas and Comstock weren’t immediately available.
“The majors are pretty much absent from the Bakken Shale and on the outskirts of the Haynesville Shale and Marcellus Shale,” Deacon said. “It’s not hard to think these guys might want to be in the core of the plans.”