An acquisition frenzy could be brewing for these 3 oil companies

Santos Ltd (ASX:STO) and Beach Energy Ltd (ASX:BPT) could be poised to strike while share prices are down in the Cooper Basin.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The fuel is all there, now all that's needed is a spark to ignite a potential frenzy of merger and acquisition activity in the Cooper and Eromanga Basins, Australia's premier on-shore oil and gas producing region.

The falling oil price has slashed the market values of many of the region's small and mid-tier energy producers, while the top tier energy producers like Santos Ltd (ASX: STO) and Beach Energy Ltd (ASX: BPT) are positioned to take advantage.

Santos Ltd cashed up and looking to grow

Santos may consider acquisitions in the Cooper Basin as it aims to prevent declining reserves and leverage its existing infrastructure.

Santos declared a net reduction to Cooper Basin reserves of 8.6% in 2013 which will be bad news given the company's significant infrastructure in the region including a 66.6% stake in the Moomba gas plant.

At the same time, Santos is about to be flooded with new cash flows as the its two major joint ventures, PNG LNG and Queensland's GLNG, start contributing to production.

A lot of this cash will be ear-marked to pay down debt and reward investors with growing dividends, but there will be a definite attraction of using the cash to grow reserves and capitalise on its infrastructure efficiencies in the Cooper Basin.

Right now that could be done at a discount. Shares in Senex Energy Ltd (ASX: SXY) for example have plummeted almost 40% in the last three months, wiping almost $300 million off the company's market capitalisation. Senex is targeting reserve growth of almost 270% over the next four years, which would make a welcome addition to Santos' 2P reserves.

Origin Energy the other contender

Another contender for Senex's assets could be Origin Energy Ltd (ASX: ORG). Origin's stake in the almost $24.7 billion APLNG project will provide it with gas processing facilitates and the company has already teamed up with Senex on two joint ventures involving spending of up to $252 million.

Beach Energy strategically positioned

Then there is Beach Energy. Beach Energy is the largest oil producer in the Cooper Basin and is no stranger to strategic share-holdings. The company owns a 4.76% stake in Drillsearch Energy Limited (ASX: DLS) and an 18.41% stake in Cooper Energy Ltd. (ASX: COE), both of which are focused on the Cooper Basin region.

Drillsearch has seen its market capitalisation slide by 26% in the last three months to $466 million, while Beach Energy is sitting on a pile of cash (and equivalents) of $411 million. Add to this the number of brokers labelling Drillsearch a 'buy' and the prospect must look tempting.

Under current conditions a strategic acquisition by any of these three companies could make a lot of sense long term, especially targeting gas assets which will likely be in high demand in the coming years, both locally and internationally.

Motley Fool contributor Regan Pearson owns shares in Senex Energy.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »