Following the news that Chevron had agreed to pay a nearly 40% premium to acquire Anadarko Petroleum, investors quickly bid up the shares of other potential acquisition targets.
As I argued in the previous article, I believe the Permian was the key to the Anadarko acquisition, but there are plenty of other targets in the region. There are also several companies with the capability of making acquisitions.
In recent years, the few mergers and acquisitions in the oil and gas industry have been largely focused on the Permian Basin. The supermajor integrated oil and gas companies have been increasingly making forays into the Permian.
In addition to Chevron’s new acquisition, in 2017 ExxonMobil paid $6.6 billion to acquire Permian acreage from the Bass family of Fort Worth, Texas. ExxonMobil also spent $41 billion in 2009 to acquire XTO, which has a major presence in the Permian.
Today major acreage holders in the Permian Basin include the supermajors Chevron and ExxonMobil, as well as Occidental, Apache and Concho Resources. Occidental, in fact, reportedly attempted to acquire Anadarko prior to Chevron sealing the deal. But Occidental may now find itself in the crosshairs of a bigger player looking to shore up their Permian portfolio.
But there are many other major producers in the region, including ConocoPhillips, EOG Resources, Pioneer Natural Resources, Noble Energy, Devon Energy, and Diamondback Energy. Smaller producers in the region include WPX Energy, Parsley Energy, Cimarex Energy, Callon Petroleum, Centennial Resource Development, Jagged Peak Energy and Laredo Petroleum.
Let’s first take a look at the largest companies operating in the Permian according to enterprise value. This metric is preferred over market capitalization, because it includes a company’s debt. In the case of a potential acquisition, the acquiring company would be responsible for this debt in addition to the purchase price. Hence, it is a more comprehensive representation of a company’s market value.
I have included the integrated supermajors that could have the ability to make major acquisitions, three of the larger exploration and production companies (which could make an acquisition or be a target themselves), and Anadarko for comparison. All data were retrieved from the S&P Capital IQ database.
- EV – Enterprise value at the close on April 12, 2019 in billions of U.S. dollars
- EBITDA – TTM earnings before interest, tax, depreciation, and amortization in billions of U.S. dollars
- TTM – Trailing 12 months
- FCF – Free cash flow in billions of U.S. dollars
- Debt – Net debt at the end of the previous fiscal quarter
- 2018 Res – Total proved oil and gas reserves in billion barrels of oil equivalent at year-end 2018
- EV/Res – The value of the company divided by its proved reserves
Based on their size and debt metrics, ExxonMobil and Chevron still appear to be the most capable of pulling off a major deal. Shell has been moving in the direction of becoming a natural gas company, and has already made major capital expenditures in this area in recent years. Further, in 2016 they made their own major acquisition — a $70 billion deal for BG Group. Meanwhile, Total hasn’t shown much interest in the Permian.