M&A activity

dan_s · Post by **dan_s** » Thu Jul 16, 2015 12:40 pm

During the last big oil price cycle (2008-2009) it was at this point that we saw a significant increase in takeovers. They want to get the deals closed by year-end, so they can book the reserves. I believe all of our Sweet 16 and several of the companies in our Small-Cap Growth Portfolio are prime takeover targets. They have concentrated acreage positions in tight oil plays that are very attractive to the majors who are sitting on lots of cash. If it is cheaper to add production and reserves by acquisition than by drilling, that is exactly what the big upstream companies will do. - Dan
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A new report by Goldman Sachs analyst Ruth Brooker focuses on the M&A environment in the oil industry. The collapse in oil prices has put many smaller oil companies in a precarious position when it comes to their balance sheets, and Goldman believes that oil majors could soon take advantage by going on a shopping spree.

Cash To Spend

According to Brooker, global oil majors currently have $150 billion of firepower than can be used for M&A and have the ability to defer another $325 billion in capex on marginal projects. With that much cash available for potential deals and up to 15 mnbls/d of production potentially available for purchase, Goldman believes a pickup in M&A activity in the oil & gas space will be coming soon.

Underexposed To U.S. Shale

The report indicates that global oil majors own just 5 percent of total U.S. shale oil resources. Goldman believes that shale production has the potential to double by 2025. Brooker argues that it is likely that majors will take this opportunity to increase their exposure to U.S. shale at historically low prices.

M&A Target Screen

Goldman ran a screen of potential buyout targets and identified the seven companies they see as most likely to draw buyout attention from the majors. “We believe these [companies] offer the majors material portfolios of strategic, high quality assets sitting low on the cost curve,” Brooker wrote.

Goldman’s screen identified EOG Resources Inc (NYSE: EOG), Pioneer Natural Resources Co (NYSE: PXD), Continental Resources Inc (NYSE: CLR), Cabot Oil & Gas Corp (NYSE: COG), Noble Energy Inc (NYSE: NBL), Anadarko Petroleum Corp (NYSE: APC) and Range Resources Corp (NYSE: RRC) as the top oil M&A targets in the market today.