6 Permian Basin Energy Stocks May Be the Next Takeover Targets

Print Email

It’s been a long time coming, but many on Wall Street that follow the energy sector have felt for some time that there could be consolidation in the Permian Basin region, and the buying may not only be relegated to the smaller companies located in certain strategic areas. With a big deal hitting the tape, there are many who will start looking for the next potential candidate.

RSP Permian Inc. (NYSE: RSPP) exploded on Wednesday, on news that Concho Resources Inc. (NYSE: CXO) is buying the exploration and production company in an all-stock transaction worth a tidy $9.5 billion. The deal price, which includes $1.5 billion in debt, is expected to close in the third quarter of this year, pending regulatory approval. The deal reportedly was already unanimously approved by both boards of directors.

With the United States poised to the world leader in oil production as early as this year, more deals for the top Permian Basin companies are highly likely. Here we focus on some of the potential candidates and screened them against our Wall Street research database looking for Buy ratings.

Cimarex Energy

This is 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 receive just a 0.3% dividend. The Baird price target for the stock is $136, but the Wall Street consensus target is $142.73. The shares closed Wednesday at $92.75.

Diamondback Energy

This is a top Permian Basin play for more aggressive accounts and a favorite pick at Deutsche Bank. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.

Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.

Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.

Jefferies has a $160 price target and the consensus target is $155.24. The shares closed Wednesday at $124.67.

EOG Resources

This leading energy company shows up well on many Wall Street screens. EOG Resources Inc. (NYSE: EOG) is one of the largest independent exploration and production companies operating in the United States, Canada, Trinidad, the United Kingdom and China.

The company has a big well in Loving County in the Delaware Basin. Top analysts say the well ranks as one of the best they have ever seen in the basin, and it could easily impact other companies drilling in the region. EOG’s average dollar gross per well on a yearly basis is a stunning $4.3 million, which ranks third among all operators.

Shareholders receive a 0.71% dividend. The $145 Baird price target is well above the $125.11 consensus target. The stock closed on Wednesday at $103.82.