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Mid-Majors in Play

|Includes:APA, APC, CLR, DNR, EOG, HES, IOC, MRO, MUR, NBL, NFX, PXD, PXP, STO, TLM, XTO, YPF Sociedad Anonima (YPF)

ExxonMobil (NYSE:XOM) just made a $4 billion purchase of Kosmos Energy's stake in the Jubilee field in Ghana (in West Africa) on October 6. (Kosmos is a private company based in Dallas.; Subject to review and approval of the Ghanaian government.)

This morning (Oct. 9) Korea National Oil Corp [KNOC] announced it has a shopping list of five to ten names, all producing between 50,000 and 100,000 barrels-per-day [bpd].  "We will make an acquisition soon," KNOC CEO Kang Young-won said.

Also according to the Reuters story they indicate they are looking for companies in the Middle East, central Asia, South America, Australia and other Asian countries, Russia and Western Africa, in that order.

It looks like the mid-majors world-wide are going up.

Companies like YPF SA (NYSE:YPF) have shown strong price action the past two days. YPF gaped up from a Tuesday close around $36.55 to a Wednesday open just over $38.

Hess Corp. (NYSE:HES), Murphy Oil (NYSE:MUR), and Talisman Energy (NYSE:TLM), along with most all the mid-majors, also gaped up on Thursday's open from Wednesday's close.

KNOC recently lost out on a bid for Addax Petroleum (it went to Sinopec).  But, although KNOC says they are looking at the Middle East first (they did buy 50% of Peru based Petro-Tech back in February), I think they might be looking hard at South America, West Africa, and Southeast Asia as well.

I don't think that Exxon is done buying either and will look to pick up another player of a similar size as this week's deal, in the $2.5 to $7.5 billion dollar range, but in a different geographic area, like North Africa or Southeast Asia.

The actions this week by Exxon and today's news statement from KNOC will also make the other large (above $25 billion in market cap) players and Asian national oil companies re-evaluate their potential shopping lists.

Of course I don't know why the KNOC would pre-announce this, it will just make prices go up.  (Unless they are in the futures market and will pay for the acquisition with the profits they make by making the mid-majors go up?)  But, I am sure that they are more concerned with securing future supply than exactly what price they pay now.  These actions (from both Exxon and KNOC, and China Petroleum & Chemical Corporation recent completed acquisition of Addax Petroleum) are telling the market that longer term the price of crude will be going up from the current $70.00 area. 

While Anadarko Petroleum (NYSE:APC) and Apache (NYSE:APA) are larger than KNOC's list of 100k bpd, they are two companies that have been making all-the-right-moves in recent years of building an attractive diversified global portfolio.  Both companies moved away from the heavy concentration of domestic U.S. natural gas they had twenty years ago to become balanced crude oil players.  I could actually see these two (both with almost identical market caps of between $33 and $34 billion) marching down the isle together to create a company about $10 billion short of ConocoPhillips (NYSE:COP).  (As long as the two management teams can gel together.)

Below is a list of companies (in addition to YPF, Hess Corp., Murphy Oil, and Talisman Energy mentioned above) in the mid-range (between $25 and $2.5 billion in market cap), and while they may not be on the KNOC's list [I see KNOC going after a YPF, a Talisman, or a European player like Tullow Oil PLC (TLW)], a rising tide seems to be lifting all boats in this market.

    * EOG Resources Inc. (NYSE:EOG)
    * Plains Exploration & Production
    * Noble Energy
    * Marathon Oil Corp.
    * XTO Energy Inc.
    * Denbury Resources Inc.
    * Newfield Exploration Co.
    * Continental Resources Inc.
    * Pioneer Natural Resources
    * Santos Limited

Additionally, InterOil (NYSE:IOC) is below my mid-major cut-off point of $2.5 billion in market cap, but I see Papua New Guinea as very attractive to a potential suitor like the KNOC.

In any event the next press release from the KNOC should prove interesting.

Disclosure: Long XOM