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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Underperforming Energy Sector May Soon See M&A Wave

Oil

Struggling oil prices in recent weeks have battered energy stocks and energy exchange-traded funds (ETFs) that have already been underperforming the market so far this year.

Analysts reckon that over the past few weeks, energy stocks have further shed price values from their price targets and breached oversold thresholds for the first time in five weeks. All these factors point to a ‘strong buy’ signal for investors.

The oil and gas stocks sell-off could spur a renewed round of corporate mergers, but likely just selective ones, in view of the current commodity prices, according to Williams Capital Group’s Gabriele Sorbara who named five U.S. companies potentially ripe for deals to Forbes contributor Claire Poole.

Even before the most recent oil price slump, two U.S. energy firms—Stone Energy Corporation and Penn Virginia Corporation—said they would explore all possible ways to “maximize shareholder value”. Both have recently emerged from bankruptcy and are seeking ways to increase shareholders’ returns.

Penn Virginia, whose key assets are in the Eagle Ford, said in its 2016 results release in March that “Given our strong liquidity, proven oil asset base and recent operating successes, we are evaluating all strategic alternatives available to the Company to maximize shareholder value.”

Last week, Reuters reported—citing people familiar with the matter—that Penn Virginia had hired Jefferies to assist it in strategic decisions, including a possible sale, as the former creditors are looking to cash out.

Stone Energy, for its part, said in April that it is retaining Petrie Partners LLC as adviser as the “board intends to explore all potential avenues to increase stockholder value, which may include the acquisition of additional assets, accessing external capital, a business combination, or another strategic transaction.” Related: What’s Wrong With The U.S. Oil Export Boom

Williams Capital’s Sorbara has named five other U.S. oil and gas companies that could be selling themselves or some of their assets—Energen Corporation, Newfield Exploration Company, SM Energy, PDC Energy, and Gulfport Energy Corporation.

Energen, focused on drilling and development of its high-quality assets in the Permian, said earlier this week that it had decided that “continuing to execute the company’s business plan is the best path to enhancing shareholder value.” The statement came a few weeks after activist investor Corvex Management LP reported at the end of May that it holds 5.5 percent in Energen and urged it to “strongly consider what actions can be taken to enhance and maximize shareholder value – including a review of the potential value delivered to shareholders through a change of control transaction given the recent wave of acquisitions in the Permian Basin at per acre values well in excess of the Issuer’s current implied value.”

The other four possible M&A participants currently trade at steep discounts, although they have prime acreage in some of the best U.S. shale plays, according to Forbes.

Newfield Exploration, whose key areas of operation are the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota, and the Uinta Basin of Utah, is next on Sorbara’s list of potential M&A targets. According to the analyst, Newfield could sell its assets in Williston for some US$850 million, and use the proceeds to accelerate a program, boost liquidity, or boost its portfolio with bolt-on acquisitions.

SM Energy—whose key assets include operations in South Texas and the Gulf Coast, the Rocky Mountains, and the Permian—could sell its assets in the Bakken’s Divide County, according to Sorbara, who has valued that property at US$400-500 million. In mid-May, SM Energy said that it had “postponed indefinitely the planned sale of its Divide County, North Dakota assets as valuations in the sales process did not reach the Company's threshold to meaningfully reduce its leverage.”

Next on the potential sale list are assets of PDC Energy, which is focused on the Wattenberg field in Colorado, the Delaware Basin in the Permian, and the Utica Shale. In its Q1 2017 results release in May, PDC Energy said that it “plans to pursue the 2017 divestiture of it Utica Shale asset in order to provide additional focus to its premier Core Wattenberg and Delaware Basin assets.” PDC Energy could receive US$200-250 million for the Utica assets, according to Sorbara.

The fifth potential M&A takeout, Oklahoma City-based Gulfport Energy, has assets in Utica Shale in Ohio, Oklahoma’s SCOOP, Louisiana Gulf Coast, and Alberta Oil Sands, among others. Gulfport Energy also holds around 24 percent in oil field services provider Mammoth Energy Services, and analyst Sorbara reckons that Gulfport Energy could sell that stake, worth around US$157 million as of the beginning of last week.

By Tsvetana Paraskova for Oilprice.com

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