Who's Next in Permian? A List of Targets After Concho Deal

(Bloomberg) -- Oil-industry watchers have been predicting a wave of buyouts among U.S. shale drillers for years. Has the starting gun finally fired?

Concho Resources Inc.’s $8 billion buyout of rival RSP Permian Inc., announced Wednesday, is being hailed by analysts as a sign the era of consolidation is at hand for explorers buoyed by rising oil prices. At the least, it could pump up stock prices that have lagged crude’s recovery over the last year, as investors doubted the staying power of the rally.

The deal also raises the question of which other companies may be ripe for the plucking in the fertile Permian shale play.

“The market will likely shift its attention as it always does immediately after an acquisition to who could be next,” John Freeman of Raymond James said in a note.

According to recent analysts’ reports, here are likely targets:

  • Centennial Resource Development Inc., Energen Corp., Jagged Peak Energy Inc., Laredo Petroleum Inc., Matador Resources Co. and Parsley Energy Inc., according to Freeman.
  • WPX Energy Inc. and Callon Petroleum Co., according to a Cowen Inc. note Wednesday.
  • Resolute Energy Corp., Energen, Jagged Peak, Abraxas Petroleum Corp., Halcon Resources Corp., and Contango Oil & Gas Co., Seaport Global said last month.

Potential buyers in the region, according to Seaport, include Diamondback Energy Inc. and Centennial, which Freeman sees as a seller. Freeman also classifies Diamondback as a potential buyer.

Concho’s acquisition of RSP Permian is the biggest ever announced in the Permian. The basin, located in West Texas and parts of New Mexico, has proven to be the epicenter of the U.S. drilling boom, where reserves are most profitable, drawing the interest from both oil majors and independent drillers.

The Permian is “now getting more into intense development,” Concho Chief Executive Officer Tim Leach said in a call with analysts. “As companies get to this point and look at their assets and their activity, the efficiency you can gain by a bigger balance sheet and a bigger program is really what’s driving this."

Concho’s deal “has the potential to spark an arms race in the region,” said Roy Martin, senior analyst at consultant Wood Mackenzie Ltd. in London. “It’s going to send a shiver down the spines of other companies.”

©2018 Bloomberg L.P.

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