It’s all but a given now that Anadarko Petroleum Corp. (NYSE: APC) will accept the takeout offer from Occidental Petroleum Corp. (NYSE: OXY) and with good reason. The cash portion of the offer, like the bid from Occidental, was substantially higher than from Chevron Corp. (NYSE: CVX). In addition, Occidental has the backing of Warren Buffett, and at the $76 offer price, Anadarko is trading at a 15% premium to its peer group based on 2020 enterprise value to estimated EBITDA. In other words, it is more than fully valued, so most likely there will be no Chevron counteroffer.
While it’s rare that a major integrated with the firepower of a Chevron would end up on the losing end of a deal of this size, but it makes sense for it to walk away. The company did have an overlap with Anadarko assets in the Permian, and while it was more than capable of managing the company’s Mozambique liquefied natural gas (LNG) operations, there was no reason to bid higher because that would have required a far bigger cash offer than what was initially presented.
The question is where Chevron turns now in its quest to expand its operations. A new Stifel report makes the case that there are far cheaper alternatives that make sense for the company to pursue next. In addition, the mere fact that Chevron may continue to hunt for a strategic Permian or Denver-Julesburg Basin asset could put a bid under the entire group.
The Stifel team specifically mentioned four companies that could be in the sights of the Chevron management, and all four are rated Buy. While there is no guarantee whatsoever they are indeed the target, they all make sense for investors looking to add quality exploration and production companies to their portfolios.
This remains a top play for investors looking to the Permian Basin. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States.
The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions.
Cimarex has a diversified base of high-quality production and attractive drilling opportunities. It should be noted that hedge funds have initiated sizable new positions in the company over the past year, and like its brethren in the Permian, many consider the company a very solid takeover target.
Investors in Cimarex are paid a small 1.21% dividend. The Stifel price target for the stock is a solid $118, and the Wall Street consensus price target is much lower at $91.83. The stock closed on Tuesday at $66.02 per share.
Last year, this company bought RSP Permian for $9.5 billion, and most on Wall Street loved the deal. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.