Who's next in oil mergers and acquisitions?

Chevron Corp. (ticker: CVX) shocked Wall Street in April by announcing a $33 billion buyout of oil and gas production company Anadarko Petroleum (APC). Less than two weeks later, Occidental Petroleum Corp. (OXY) announced a competing $57 billion buyout bid for Anadarko. According to CFRA analyst Stewart Glickman, Chevron, Exxon Mobil Corp. (XOM) and other oil majors are looking to expand their shale oil exposure, which means investors can expect even more consolidation in coming quarters. With the Anadarko bidding war heating up, here are eight oil companies that could be the next buyout target.

Next:Cimarex Energy (XEC) Credit

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Cimarex Energy (XEC)

Like Anadarko, Cimarex has large exposure to the Permian basin. Unfortunately, Cimarex has 40% exposure to natural gas and is relatively unhedged compared to its peer group. Permian natural gas prices have slumped recently due to pipeline issues, and Glickman says insufficient takeaway capacity will continue to plague the region until at least the second half of 2019. Glickman estimates Cimarex has only hedged about 25% of its 2019 gas production. Still, Cimarex has low debt levels and a strong balance sheet. CFRA has a “hold” rating and $73 price target for XEC stock.

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Who's next in oil mergers and acquisitions?

Chevron Corp. (ticker: CVX) shocked Wall Street in April by announcing a $33 billion buyout of oil and gas production company Anadarko Petroleum (APC). Less than two weeks later, Occidental Petroleum Corp. (OXY) announced a competing $57 billion buyout bid for Anadarko. According to CFRA analyst Stewart Glickman, Chevron, Exxon Mobil Corp. (XOM) and other oil majors are looking to expand their shale oil exposure, which means investors can expect even more consolidation in coming quarters. With the Anadarko bidding war heating up, here are eight oil companies that could be the next buyout target.

Cimarex Energy (XEC)

Like Anadarko, Cimarex has large exposure to the Permian basin. Unfortunately, Cimarex has 40% exposure to natural gas and is relatively unhedged compared to its peer group. Permian natural gas prices have slumped recently due to pipeline issues, and Glickman says insufficient takeaway capacity will continue to plague the region until at least the second half of 2019. Glickman estimates Cimarex has only hedged about 25% of its 2019 gas production. Still, Cimarex has low debt levels and a strong balance sheet. CFRA has a “hold” rating and $73 price target for XEC stock.

Concho Resources (CXO)

Concho is a U.S. oil and gas producer with 590,000 net acres in the Permian Basin in Texas and New Mexico. Glickman says Concho is well run, with exposure to the hottest shale region and a strong balance sheet, all positives for a potential buyer. Concho has a net debt-capital ratio of only 18%, roughly half the 34% average of its peer group. In addition, CXO stock trades at more than a 30% discount to its five-year average earnings multiple. CFRA has a “hold” rating and $116 price target for CXO stock.

ConocoPhillips (COP)

At a market cap of $74.9 billion, a takeover of ConocoPhillips is unlikely. However, in 2015, Royal Dutch Shell (RDS.A) announced a $70 billion buyout of BG Group. If Exxon Mobil really wanted to make a splash with a huge deal, ConocoPhillips would certainly accomplish that goal. Glickman says ConocoPhillips’ commitment to paying down debt and returning cash to shareholders is starting to pay off in 2019. The company’s debt-capital ratio is below its peer group, and its payout ratio is healthy. CFRA has a “strong buy” rating and $82 price target for COP stock.

Continental Resources (CLR)

Continental is a U.S. oil and gas producer with major exposure to the South Central Oklahoma Oil Province and Stack (Sooner Trend, Anadarko Basin, Canadian and Kingfisher) regions of the Oklahoma Anadarko Basin. In addition, at least 55% of Continental’s recent production has come from the Bakken region of the U.S. in Montana and North Dakota. Glickman says Continental is well-positioned to be among the top of its peer group in free cash flow this year. Relatively high debt levels are concerning, but Continental doesn’t have any major maturities on the horizon until 2022. CFRA has a “buy” rating and $54 price target for CLR stock.

Diamondback Energy (FANG)

Diamondback is a Permian Basin pure-play that may be one of the most appealing potential takeover targets. Glickman says Diamondback has very little debt and strong cash flows, even after a $9.2 billion acquisition of Permian competitor Energen back in November. Diamondback now has 390,000 of Permian acres, and Glickman says investors should expect impressive production growth and record earnings in the near term. CFRA is projecting 27% production growth in 2019, yet FANG stock is trading near its all-time lowest valuation. CFRA has a “buy” rating and $125 price target.

Apache Corp. (APA)

Apache is an oil and gas production company with 2.3 billion barrel of oil equivalent (BOE) in proven reserves in the U.S., Egypt and the North Sea. Despite its Permian exposure and its focus on improving capital efficiency, Glickman says its high debt levels and its relatively high exposure to natural gas liquids could be red flags for potential buyers. Lower natural gas prices could weigh on cash flow in the near term. Glickman also says Apache is making a mistake by prioritizing capital return over paying down debt. CFRA has a “sell” rating and $30 price target for APA stock.

EOG Resources (EOG)

EOG is one of the largest U.S. exploration and production companies, generating 126,800 barrels per day in Permian production and 171,000 barrels per day in Eagle Ford gas-shale formation production in 2018. Permian production was up 47% last year, and EOG is one of the few U.S. producers planning to increase its capital spending in 2019. EOG has one of the lowest break-even prices for production, providing a safety net for the investors in the event of a downturn in oil prices. CFRA has a “strong buy” rating and $130 price target for EOG stock.

Pioneer Natural Resources Co. (PXD)

Pioneer is an oil and gas producer with production heavily weighted toward oil in the Permian Basin and Eagle Ford regions. Glickman says Pioneer’s relatively high oil exposure is helping drive more impressive financial returns than its peer group. Pioneer’s relatively low debt-capital ratio gives the company more financial wiggle room than many of its peers, and early results at its Wolfcamp property have been positive. Pioneer has guided for an 11% capital expenditure reduction and 15% production increase this year. CFRA has a “buy” rating and $185 price target for PXD stock.

Oil stocks that could be bought out.

Cimarex Energy (XEC)Concho Resources (CXO)ConocoPhillips (COP) Continental Resources (CLR) Diamondback Energy (FANG)Apache Corp. (APA)EOG Resources (EOG) Pioneer Natural Resources Co. (PXD)1 of 11

Wayne Duggan, Contributor

Wayne Duggan has been a U.S. News & World Report contributor since 2016. He is an expert at ...  Read more

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