Oil Majors Have Over $500 Billion For Acquisitions

Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and other global leaders in oil have more than $500 billion in their collective war chest in cash and equity, to acquire or merge with rival energy companies, according to Bloomberg. The world’s top energy player, Exxon has around $320 billion in reserves while Chevron has set aside around $65 billion in stock and cash for potential merger and acquisition (M&A) deals.

In past year, crude oil prices have plunged by around 60%. The depressed crude oil market allows for more consolidation deals in the energy industry. In this year, energy giants including Royal Dutch Shell plc (ADR) (NYSE:RDS.A), BG Group plc (ADR) (OTCMKTS:BRGYY), Halliburton Company (NYSE:HAL), Baker Hughes Incorporated (NYSE:BHI), and Schlumberger Limited.(NYSE:SLB) have entered into M&A deals. These activities, in the global oil and gas industry, increased more than 23% year-over-year (YoY) in 2015. Energy companies are on the look out for M&As, as they want to bolster their balance sheet positions and improve production and operational efficiency.

On Wednesday, November 11, Anadarko Petroleum Corporation (NYSE:APC) withdrew its acquisition offer to Apache Corporation (NYSE:APA), after the latter refused a hostile takeover bid offer on Sunday. The withdrawal of the acquisition bid offer by Anadarko Petroleum has stirred speculations in the market that other energy companies may make a bid offer to either of the two companies.

Apache Corp. recorded solid financial performance in the third quarter of fiscal of 2015 (3QFY15). The company is the acquisition target of many oil and gas companies as it has good exposure to the Permian basin. The company has wide gross acreage of more than three million acres in the Permian Basin. Despite the turmoil in the crude oil market, Apache Corporation has not cut its production growth rate.

Anadarko Petroleum has remained the focus of attention for many energy companies over the past year. The company’s stock has lost 26% of its value year-to-date (YTD), while this year earnings performance has also not been impressive. Industry experts and analysts had expected Anadarko Petroleum to make an acquisition offer to Apache Corporation to defend itself from bids by other energy companies.

Apart from Apache and Anadarko, New York-based Hess Corp. (NYSE:HES) can also be an acquisition target for the big oil giants. Although the company outperformed analysts’ expectations in the recent quarter, its net income dropped from $365 million 3QFY14 to an adjusted net loss of $266 million. Hess Corp., which has liquidity ratio of 29.3%, up from 24.61% in the same period of last year; has delivered robust production growth in 2015. This makes it an attractive target for either a merger or an acquisition.

Exxon and Chevron, with around $385 billion reserves for potential merger and acquisition deals, are best positioned to snap up their rival oil and gas companies. They are followed by BP plc (ADR) (NYSE:BP) whose reserves tally $53 billion, Shell’s cash reserves of $32 billion, ConocoPhillips (NYSE:COP) and Total SA (ADR) (NYSE:TOT) reserves of $31.5 billion and $30.5 billion, respectively, also pose significant muscle for M&As. Shell has set aside almost all of its $32 billion in cash. However, as the company has entered into a merger deal with BG Group this year, we cannot expect the company to announce any major consolidation deals in the near future. Moreover, as Chevron is focused on reduction in its production target this year due to the current market situation; it may also be not interested in an acquisition of Apache or Anadarko, for now.

However, we can expect the world’s top oil and gas integrated company, Exxon, to make an acquisition offer in the near future. The energy company posted better-than-expected results in the 3QFY15 as it surpassed consensus expectations of 89 cents. Although the company’s stock has shrunk by 15.5% in the past year, Exxon’s management is determined to maintain its position as the leading energy player in the industry.

Unlike other oil and gas companies, Exxon has not cut its production target or workforce headcount, despite deteriorated crude oil market conditions. In the latest quarter, it increased its total production to 3.9 million barrels of oil equivalent per day (boepd), from 3.89 boepd, in the same period of the previous year.

After Apache Corp.’s rebuff of the offer by Anadarko Petroleum, we can expect Exxon’s interest in Apache, to increase. In the last two decades, Exxon has struck two mega deals of $88 billon and $35 billion, respectively. Meanwhile, the company has also signed five deals in the Permian Basin as it is determined to increase its exposure in the region.

Source: www.bidnessetc.com

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