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By Wayne Duggan
| November 2, 2016
Baker Hughes Incorporated (BHI) stock jumped following the company’s announcement on Monday of a merger with General Electric Company's (GE) oil and gas segment. But owners of oil stocks have been hearing about a potential tsunami of buyout activity in the space ever since the price of crude oil bounced off of the $26 level back in February.
Now that GE and BHI have reached a deal, it could signal the beginning of the consolidation wave of the U.S. oil downturn.
Potential buyers may begin feeling the heat to pursue their favorite targets before they disappear as well. Oil majors have plenty of cash on hand for deals. Now that it appears as if the bottom is in sight for the oil market, some promising targets are on sale for cheap.
Here are three oil stocks that could be the next takeover targets.
Courtesy Whiting Petroleum
Market capitalization: $2.36 billion
When it comes to oil stocks that are on sale, Whiting Petroleum Corp is at the top of the list. WLL stock peaked at above $84 in 2014. Today, it trades below $9. Still, WLL controls some of the best oil assets in the Bakken Basin.
In addition to 444,000 acres of prime real estate in North Dakota and Montana, WLL also controls 129,000 acres in Colorado’s DJ basin as well.
The company believes it can grow production my more than 10% at a crude price of $55/bbl. The oil market isn’t quite there just yet, but it could be soon.
At a market cap of only about $2.4 billion, WLL stock could make a relatively manageable buyout target for oil majors, such as Exxon Mobil Corporation (XOM) or Chevron Corporation (CVX).
WLL performed an exchange offering back in June to address more than $1 billion in debt that it had been carrying. The stock sold off sharply following the news, but analysts praised the move as the responsible decision.
Market cap: $49.3 billion
If one of the U.S. oil majors decides to follow in Royal Dutch Shell plc's (RDS.A, RDS.B) footsteps and make a big move, EOG Resources Inc (EOG) could be the target.
Shell decided it was time to go big or go home when it paid $52 billion for BG Group earlier this year. At a market cap of just under $50 billion, EOG is nearly the same size as BG Group was.
Only a handful of companies have the resources to make a move this big, but they could certainly be interested. Goldman Sachs has listed EOG’s assets as among the best in the market. In fact, Goldman itself named EOG and five other companies as top oil and gas buyout targets last year.
“We believe these [companies] offer the majors material portfolios of strategic, high quality assets sitting low on the cost curve,” Goldman Sachs said of the group.
Gerd Fahrenhorst via Wikipedia
Market cap: $4.64 billion
Schlumberger Limited (SLB) made a $14.8 billion acquisition of Cameron International. Now GE has snatched up BHI’s assets. While the other top players in the oilfield services space have made aggressive moves, Halliburton Company (HAL) hasn’t been able to land the big one.
The company still has (most of) the cash from the failed BHI deal burning a hole in its pocket. As of this week, HAL is now staring down the barrel of a massive new competitor in GE.
If HAL wants to make a move, there are limited options. Weatherford International Plc (WFT) could be the best one. At a market cap of only $4.6 billion, regulators would likely not deem a WFT buyout as the elimination of a “major” oilfield services competitor.
Barclays upgraded WFT stock to “overweight” back in June. The firm acknowledged WFT’s troubling debt and its weaker market position and lower-quality assets than its larger rivals. However, if HAL wants to make an M&A splash before the market really starts to recover, WFT may be its most likely target.
This article is by Wayne Duggan of InvestorPlace. As of this writing, he was long SLB, HAL, BHI and RDS.B stock.
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