Analysts Say Producers are Ripe for the Picking
Don't get sick of merger-mania quite yet, warns All Star Oil
analyst Fadel Gheit. Burlington Resources is leading the next wave
of attractive independent oil and gas producers that are ripe for
takeover, he claims.
"I think [Burlington] is ripe to get bigger, either on its own
or through somebody else., Gheit said yesterday. "The company has
quality assets that would make it quite attractive for a much
larger oil company." For 1998, revenues decreased 18% to $1.64
billion. Net income decreased 73% to $86 million. Revenues reflect
lower oil and gas sales due to divestitures and lower commodity
prices. At year-end 1998, Burlington's worldwide proved reserves
totaled 8 Tcfe, the second largest of any U.S. independent oil and
gas company. Natural gas accounted for 80% of the reserves.
Burlington also replaced 123% of its 1998 worldwide production.
Gheit said a merger with Burlington would occur if the company's
stock reached the $45-50 level and it would involve a stock deal
with a 30% premium. On Wednesday morning, Burlington's stock gapped
up from $39.50 to $40 at the NYSE open.
"It is our policy not to comment on speculation," said
Burlington spokesman John Carrara. "Merrill Lynch did make us a
'Focus-one' company and did write up a very nice report on us,
which might have led to the stock activity, but I cannot say
anything about the merger rumors."
Joe Culp, an AG Edwards analyst, said the time is right for
independent producers to merge. "The majors have already gone
through the merging fad. Now, they are so big that the North
American assets are turning out to be too mature and labor
intensive to fit their needs. So, we think they're going to sell
them off and focus on international assets that have bigger
potential. This opens the door for these independent producers to
come in, buy up these North American properties, and make some real
money. They also should merge to diversify their assets because any
one of these fields could dry up."
The next three to six months will be an active time when "the
minnows are going to be gobbled up," said John Olson, an analyst with
Sanders, Morris & Mundy. He called Houston the "biggest flea
market in the solar system." To prove his point, Olson pointed to
Enron Oil & Gas being shopped around (See Daily GPI, Dec. 17) and the recent merger
between Sonat and El Paso (See Daily GPI,
March 16) as evidence that merger-mania is alive and still
He said "the crown jewel" of the oil and gas producer merger
candidates is Mitchell Energy. The producer replaced 185% of its
gas reserves last year. The company had proved reserves of 867 Bcf
of gas and 16.2 million BOE. For 1998, Mitchell Energy reported a
net loss of $49.7 million compared with the previous year when the
company had a net loss of $35.1 million.
"Its really the last classical Texas gas gatherer out there.
They have their own reserves, gathering systems, natural gas
liquids plants and marketing operations. They are an unregulated
intrastate producer. Mitchell has a good balance sheet, low finding
costs, and tons of reserves. The stock is at $13 right now. I think
it could get up to $18.75 and then it will be an attractive
©Copyright 1999 Intelligence Press Inc. All rights reserved. The
preceding news report may not be republished or redistributed, in
whole or in part, in any form, without prior written consent of
Intelligence Press, Inc.