Hypothetical M&A combinations were the theme of the week, says Jefferies & Co. analyst Subash Chandra, with underperforming gas names as sellers and the majors buying. Except few of the combinations make sense, he says. "In the few completed transactions we've seen, there is no evidence of an appetite for big premiums to NAV." While buyers are willing to look ahead a year or so, no valuation is being given to probable reserves beyond that point, he observes. Rumored targets such as Petrohawk Energy Corp., Southwestern Energy Co. and Tullow Oil Plc trade at "significant premiums" to 2011 proved NAV, effectively eliminating them as likely targets. Ultra Petroleum Corp., however, does not. Chandra says the CEO of Petrohawk stopped by his office this week---that would be Floyd Wilson---"stating unequivocally that buyers have expressed zero interest, terrified by the premium that may be required." Potential buyers have similar dissuading issues. ConocoPhillips carries the "searing legacy" of the Burlington acquisition. ChevronTexaco consistently denies wanting to make a corporate shale transaction. Devon Energy Corp. staunchly states it is not seeking a suitor, thus making a high premium a credibility killer. And BP Plc "has clearly demonstrated an appetite for assets over companies, in the U.S. at least." Private company acquisitions, on the other hand, are very much alive. "With baited breath we await the results of the Common Resources data room and a possible deal for Ellora Energy." As for Devon, Jefferies analyst Biju Perincheril believes the company received a "good, not great" price for its international and Gulf of Mexico portfolio, but says, "for a company dedicated to North American onshore plays, Devon's portfolio outside of the Barnett and Cana shales has holes---the company may be forced to pursue acquisitions." He adds: "Reminds us a lot of another large-cap North American onshore name in early '08." I'm guessing XTO. And we know the end to that story.
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