5 Oil And Gas Buyout Targets For The Large Cap Majors

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Includes: BP, CHK, COP, CVX, DVN, RRC, TOT, XEC, XOM
by: Investment Underground

By Ann McQueen

These five independent oil and gas companies show promise as buyout targets for any of the major oil and gas companies. In this article, I analyze each stock to determine which large-cap major pairs well with its resources and areas of focus.

Devon Energy Corporation (NYSE:DVN) – With exploration and drilling interests in close to 13 million acres in North America, two thirds of which are undeveloped, DVN boasts a strong presence in key producing regions. It is currently trading near $64.23. Its market capitalization is close to $26 billion, and its enterprise value is $29.24. Earnings before interest, tax, depreciation and amortization (EBITDA) are $6.59 billion. The company’s revenue has grown at a rate of 7.8 percent over the past ten years and at a rate of 12.4 percent over the past 12 months. Its earnings have grown at a rate of 6.5 percent over the past 12 months. DVN’s operating cash flow is $5.46 billion, but its levered free cash flow is -$2.59 billion.

Chevron Corporation (NYSE:CVX) is currently trading near $104. Its market capitalization is over $207 billion. The company has plenty of cash – over $20 billion – on its balance sheet. Its debt to equity ratio is also very low at 8 percent. CVX’s ten-year revenue growth rate is 10.2 percent, and its 12-month rate is 24.2 percent. Earnings have grown at a rate of 27.3 percent over the past ten years and by 61.2 percent over the past 12 months.

CVX was the largest leaseholder in the Gulf of Mexico at the end of last year. It is also one of the largest producers of hydrocarbon in the Permian Basin as well as a major player in the Mid Continent region. DVN’s operations are focused in these areas. Its production is stable and its opportunities in exploration and development are promising. I would not be surprised to see CVX add DVN’s

Cimarex Energy Co. (NYSE:XEC) – This independent oil and gas exploration and production company operates in the Mid Continent, Permian Basin and Gulf Coast areas of the U.S. It is currently trading near $67 a share. Its market capitalization is over $5.7 billion, and its enterprise value is $6.33 billion. EBITDA are $1.24 billion. XEC’s revenue has grown at a rate of 11.5 percent over the past ten years. Over the past 12 months, it has grown at a rate of 11.1 percent, but its earnings have declined at a rate of 7.2 percent. XEC’s operating cash flow is $1.22 billion, but its levered free cash flow is -$521.3 million.

XEC’s promising resources would appeal to CVX, but ExxonMobile Corp. (NYSE:XOM) is expanding its resources in the U.S., especially in unconventional gas and oil. XEC’s resources fit well with XOM’s areas of focus. XOM is currently trading near $81 a share. Its market capitalization is $386 billion. It shows over $11 billion on its balance sheet. Its debt to equity ratio is 6 percent. XOM’s revenue has grown at a rate of 12.5 percent over the past ten years and at a rate of 26.9 percent over the past 12 months. Earnings have grown at a rate of 14.3 percent over the past ten years and 49.5 percent over the past year. XOM is positioned to buy out XEC, or any of the other independents, for that matter.

Range Resources Corporation (NYSE:RRC) ­ - This company operates in the Mid Continent, Marcellus, Southern Appalachia and Southwestern regions of the U.S. It is currently trading near $65 a share. Its market capitalization is over $10 billion, and its enterprise value is $12.50 billion. EBITDA are $739.59 million. The company’s revenue has grown at a rate of 13.7 percent over the past ten years, and its earnings have remained flat. Over the past 12 months, revenue has grown at a rate of 3.9 percent, but earnings have declined at a rate of 510.3 percent. RRC’s operating cash flow is $528.25 million, and its levered free cash flow is -$128.28 million.

Known for its 2010 Deepwater Horizon disaster, BP Plc. focuses many of its efforts on deepwater exploration and drilling, but the company boasts onshore operation in Colorado, Kansas, New Mexico, Oklahoma Texas and Wyoming. BP is currently trading near $42. Its market capitalization is over $131 billion. With $18.28 billion in cash on its balance sheet, BP has the resources to target acquisitions. Its debt to equity ratio is 31 percent. BP’s revenue has grown at a rate of 8.2 percent over the past ten years and at a rate of 25.2 percent over the past year. Its earnings have been flat over the past ten years and have declined at a rate of 573.7 percent over the past year.

Many of RRC’s resources blend well with BP’s, and its Marcellus Shale resources could add new dimension to BP’s operations.

Ultra Petroleum Corp. (UPL) – This natural gas exploration company controls over 112,000 acres in the Green River Basin of Wyoming and 225,000 acres in Pennsylvania’s Marcellus Shale. UPL is currently trading near $32.58. Its market capitalization is almost $5 billion, and its enterprise value is almost $7 billion. EBITDA are $936.11 million. The company’s ten-year revenue growth rate is very strong at 44.4 percent, and its 12-month rate is 11.3 percent. Its earnings have declined at a rate of 31.2 percent over the past 12 months. Its operating cash flow is $940.38 million, and its levered free cash flow is -$714.10 million.

ConocoPhillips (NYSE:COP) has focused some of its exploration and development efforts in the Green River Basin, though efforts in Pennsylvania’s Marcellus Shale are minimal. Still, UPL’s resources in Wyoming blend well with this giant’s, and its leaseholds in Pennsylvania can bring new opportunities. COP is currently trading near $70 a share. Its market capitalization is almost $93 billion. It shows $6.03 billion in cash on its balance sheet, and its debt to equity ratio is 34 percent. COP’s ten-year revenue growth rate is 18.2 percent, and its one-year growth rate is 34.1 percent. Earnings have been flat over the past ten years but have grown at a rate of 10.4 percent over the past 12 months.

Chesapeake Energy Corporation (NYSE:CHK) – As the second-larges natural gas producer and the most active driller of new wells in the U.S., this company boasts interests key areas including Barnett, Haynesville, Marcellus, Pearsall, Granite Wash, Eagle Ford, Niobrara and Three Forks/Bakken. It is currently trading near $24 a share. Its market capitalization is over $15 billion, and its enterprise value is almost $28 billion. EBITDA are $4.15 billion. CHK’s ten-year revenue growth rate is 13.4 percent, and its 12-month rate is 12.1 percent. Earnings are flat. Its operating cash flow is $4.87 billion, and its levered free cash flow is -$9.83 billion.

CHK’s assets would complement those of any of the majors mentioned above. The French Total S.A. (NYSE:TOT) entered into a joint venture with CHK in 2009 to produce shale gas in Texas’ Barnett Shale Basin. TOT could benefit from CHK’s resources in other parts of the U.S. as well. TOT is currently trading near $50. Its market capitalization is over $112 billion. It carries $28.26 billion on its balance sheet. Its debt to equity ratio is 34 percent. Revenue has grown at a rate of 10.5 percent over the past ten years and at a rate of 13 percent over the past year. Earnings have grown at a rate of 12 percent over the past ten years and at a rate of 12.7 percent over the past 12 months.



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.