Occidental’s acquisition of Anadarko could lead Permian Basin operators to reduce assets to prep for coming M&A opportunities

By Todd Garner
Oil and Gas Asset Practice Leader
Managing Director

Occidental Petroleum’s recent announcement that it will buy Anadarko could signal a new wave of merger and acquisition activity in the oil patch, with the Permian Basin a main target.

The deal, after all, is the largest acquisition in the oil & gas industry since Exxon bought Mobil more than a decade ago, and it appears to have energized the industry.

In terms of the Permian Basin, the Occidental/Anadarko transaction could set off a shock wave of M&A activity, but when that occurs could depend on whether other supermajors follow suit.

The multibillion-dollar offer from Oxy has captured everyone’s attention, in part, because of how it went down. We were told Chevron was buying Anadarko, and we didn’t have reason to doubt the deal would be consummated. That combination, of course, had us all talking about what the future might portend. Chevron, which announced its plans in mid-April, portrayed the deal as a way to strengthen its leading position in the Permian while building on its deepwater assets in the Gulf of Mexico and growing its LNG business.

Well, what a difference a few weeks can make. We can certainly ponder whether Occidental overpaid to bump Chevron to the side. There certainly are plenty of dissenters to the deal metrics. Seekingalpha.com and others question whether the numbers add up. What has us captivated, though, is what this transaction could mean for the biggest oil reserve in the U.S. — the Permian Basin.

Will it kick off a wave of acquisitions by large independents seeking scale or other supermajors active in the Permian, or those seeking to get in on one of the lowest priced basins in the world? Will regional and smaller players trim balance sheets, shed assets and get their financial houses in order to make themselves a better match for a marriage down the road?

Jonathan Waghorn, a portfolio manager for Guinness Atkinson, made some telling comments to Fortune magazine after Chevron was jilted at the altar:

“There are plenty more fish in the sea,” says Waghorn. “There’s no particular reason that Anadarko should stand out.”

Indeed, there are a host of potential acquisition targets in the Permian. For curiosity’s sake, I took a look at stock prices for a handful of the biggest Permian Basin producers who are potential acquisition targets.

Several received significant bumps in their stock prices, from 1% to over 4% after Chevron announced plans to buy Anadarko and/or after Occidental emerged as the winner in the buyout battle. But it’s also notable that many oil & gas stocks tumbled a few days after the Occidental announcement — on May 13 — when investors got spooked about an escalating trade war with China. Energy stocks have been slowly making up ground since.

Another analysis could dig into the metrics of this acquisition by Occidental, to see what really is lurking under the hood. But, for today, one should be ready for a potential ramp-up in assets trading hands, most notably from the independents preparing themselves for a call-up to the big leagues.

A better way to prune assets

Potential takeover targets may want to begin pruning assets to make themselves more attractive. If these companies want to stay under the radar yet keep a leg up on potential competitors in this process, they’ll want to seek out an M&A advisor well-versed in keeping such deals out of the public auction process. We will have more to say on this topic as this phase of market activity in the Permian unfolds.

Capital Alliance’s international alliance with Oaklins, coupled with its specialization in the middle market, makes it a prime candidate to offer up sell-side and buy-side options as M&A heats up in the oil patch.

Capital Alliance Corporation is a Dallas-based investment banking firm with a four-decade history and deep operational and M&A experience across many sectors, including energy infrastructure. Capital Alliance is affiliated with Oaklins International, the world’s most experienced mid-market M&A advisor, with 800 professionals globally and dedicated industry teams in 40 countries worldwide. We have closed over 1,500 transactions in the past five years. Capital Alliance provides advisory services to buyers and sellers of oil and gas assets. This includes acquisition and divestiture (A&D) services and support for attracting capital sources for development projects.