The crash in the oil price and the resultant crash that has occurred across stocks exposed to the oil and gas sector has finally started to draw out suitors with a nose for a bargain.
The uptick in corporate activity suggests the cyclical low could have been reached and a floor set on the sector.
The first major oil and gas stock to receive interest was Oil Search Limited (ASX: OSH) which fielded a non-binding, indicative proposal from the giant Woodside Petroleum Limited (ASX: WPL). The takeover was pitched as an all-script bid and offered Oil Search's shareholders 0.25 Woodside shares for every Oil Search share – currently that offer implies around $7.75 per Oil Search share. The board of Oil Search has since rejected the proposal.
Next up was the surprise move by Scepter Partners (a direct investment business whose stakeholders include a standing syndicate of ruling families, ultra-high-net-worth industrialists and sovereign wealth funds), which launched what Santos Ltd (ASX: STO) described as "an indicative, highly conditional and non-binding proposal" to acquire 100% of the company for a cash consideration of $6.88 per share. The board of Santos immediately rejected Scepter's bid, describing it as not reflecting the fair underlying asset value of the company.
Given the size of these bids there is obviously an appetite to undertake some massive deals in the oil and gas space.
Whether these large takeovers progress or not remains to be seen, but it is highly likely that some smaller players will also find themselves in the sights of acquirers.
One oil and gas region that often gets singled out for attention is the Cooper Basin. It is a highly prospective region and could be worth a look by investors seeking opportunities to position their portfolios to benefit from oil and gas sector M&A. Operators in this space include Beach Petroleum Ltd (ASX: BPT), Senex Energy Ltd (ASX: SXY), Drillsearch Energy Limited (ASX: DLS) and Cooper Energy Ltd. (ASX: COE); with market capitalisations of around $900 million, $220 million, $300 million and $70 million respectively, these could be easy bolt-on acquisitions for cashed-up suitors.
