Chevron-Anadarko Deal Sends Shale Stocks Surging -- Update
April 12 2019 - 5:13PM
Dow Jones News
By Rebecca Elliott
Shares in some of the biggest shale companies soared on hopes
that Chevron Corp.'s $33 billion deal to acquire Anadarko Petroleum
Corp. could start a wave of consolidation in the U.S. oil
patch.
Pioneer Natural Resources Co., Concho Resources Inc. and Parsley
Energy Inc. shares had surged more than 8% Friday, as investors
speculated that bigger players' long-expected gobbling up of
smaller ones could finally be at hand. Meanwhile, a broader index
of U.S. oil-and-gas companies was up about 3%, compared with an
increase of less than 1% in the price of crude.
The uptick was especially pronounced among companies with large
positions in the booming Permian Basin of West Texas and New
Mexico, where oil production now tops 4 million barrels daily,
according to the Energy Information Administration.
"The game is on to acquire these companies," said Jarand Rystad,
chief executive of energy consulting firm Rystad Energy. He added
that companies with choice acreage in the Permian Basin are
particularly attractive to oil giants looking to expand their U.S.
shale footprint.
The Chevron deal also pushed investors to bet via the options
market on further gains by shale stocks. Options volumes soared on
Friday for companies such as Pioneer, Noble Energy Inc. and
Diamondback Energy Inc.
The number of contracts that changed hands on Pioneer was 10
times the daily average over the past month, according to data from
Trade Alert. The top trades were bullish contracts that would pay
out if Pioneer rallied by June to $175 a share, or 4% above where
the shares closed Friday.
Analysts and investors have long expected the smaller producers
that pioneered horizontal drilling and hydraulic fracturing to join
forces as they transitioned from exploration to development. Scale
allows companies to better manage the logistical challenges of
extracting and transporting oil and gas, driving down costs. Some
smaller companies are starved for capital and vulnerable to
takeover attempts, analysts said.
But mergers have been relatively slow to materialize as shale
drillers have struggled to adjust to demands that they prioritize
profits over growth. Many of the deals that did go through last
year were received poorly by the market as investors questioned
their value.
Shares in Encana Corp. have fallen about 26% since the
Calgary-based company announced plans in November to buy Newfield
Exploration Co. Concho Resources Inc., meanwhile, saw its share
price fall roughly 27% since it agreed to buy RSP Permian Inc. in
March 2018.
Deals in the U.S. oil patch subsequently slowed to a 10-year low
of $1.6 billion in the first quarter, on the heels of a steep drop
in the price of oil late last year, according to energy analytics
firm DrillingInfo.
U.S. benchmark oil prices have since rebounded by about 50%,
closing at $63.89 a barrel on Friday. Meanwhile, an index of U.S.
oil-and-gas companies has risen roughly 35% as Wall Street has
grown increasingly skeptical of the industry.
Lower valuations paired with a more stable oil price have made
acquisitions more attractive, said Kris Nicol, director of
corporate research for Wood Mackenzie. He named Royal Dutch Shell
PLC., Occidental Petroleum Corp. and ConocoPhillips as among the
likely aggregators.
"Companies are starting to take a much longer view and develop
these assets like a megaproject with a complex supply chain and
significant spending in concentrated areas," said Noah Barrett, an
energy analyst at Janus Henderson Investors, which has about $328
billion in assets under management. "That amount of capital and
logistical intensity will play well into the strengths of larger
companies."
--Bradley Olson and Inyoung Hwang contributed to this
article.
Write to Rebecca Elliott at rebecca.elliott@wsj.com
(END) Dow Jones Newswires
April 12, 2019 16:58 ET (20:58 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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