If Exxon and Chevron Go Shopping, Here are the Companies Morgan Stanley says They Could Buy
This has prompted speculation about consolidation, and Morgan Stanley energy analysts Wednesday offered some possible combinations that would make sense based on “accretion and geographic overlap.”
For
industry leader Exxon Mobil (ticker: XOM), two potential acquisition targets
are Pioneer Natural Resources (PXD) and Diamondback Energy (FANG). Pioneer has
been mentioned as a possible target for Exxon for some time.
Morgan
Stanley said Chevron (CVX) could buy Cimarex Energy (XEC), which is a much
smaller target than Anadarko Petroleum. Chevron bid for Anadarko earlier this
year and was topped by Occidental Petroleum (OXY).
“Consolidation
appears increasingly necessary as shale matures,” the Morgan Stanley team
wrote. “Many companies are still struggling to generate meaningful free cash
flow and strong corporate returns, due in part to sub-scale operations and
resulting high costs and inefficiencies.”
One
of the challenges for deal activity is that mergers at large premiums have not
been well received, which can act as a deterrent to buyers. That might prompt
“low- or no-premium mergers of equals,” the report states. The authors include
analysts Devin McDermott and Drew Venker.
Occidental’s
deal for Anadarko came at a large premium and has played poorly on Wall Street,
with Occidental down 26% to $45.
Other
potential combinations include Marathon Oil (MRO) and Devon Energy (DVN), which
have exposure to the hot Permian basin, and Range Resources (RRC) and
Southwestern Energy (SWN), two natural-gas producers. The firm also cited Oasis
Petroleum (OAS) and Whiting Petroleum (WLL), two producers in the Bakken
region. The analysts cautioned that they have “no knowledge of any discussions involving
any of the companies mentioned” in the report.
E&P stocks are having a tough year despite a 15% gain in crude oil prices to around $56 a barrel (based on U.S. benchmark West Texas Intermediate). The SPDR S&P Oil & Gas Exploration & Production exchange-traded fund (XOP) is off 12% so far in 2019 to $23. Natural-gas producers like Southwestern and Range have been particularly weak.