RBC: Kerr-McGee-Westport deal not likely to spur 'merger mania'

The potential for a flurry of merger and acquisition activity in the exploration and production sector is not likely, even after Kerr-McGee Corp. Wednesday announced plans to acquire Westport Resources Corp. in a multibillion dollar deal, according to RBC Capital Markets Corp. analyst Joseph D. Allman.

April 7, 2004

2 min read

By OGJ editors
HOUSTON, Apr. 7 -- The potential for a flurry of merger and acquisition activity in the exploration and production sector is not likely, even after Kerr-McGee Corp. Wednesday announced plans to acquire Westport Resources Corp. in a multibillion dollar deal, according to RBC Capital Markets Corp. analyst Joseph D. Allman (OGJ Online, Apr. 7, 2004).

"We do not think the Kerr-McGee-Westport transaction will spur a lot of M&A activity," Allman said Wednesday in a research note. "A few additional transactions will likely happen, since companies have free cash flow and better balance sheets, but we do not expect much activity out of the ordinary," he predicted.

The E&P sector is "fairly valued at this point," Allman said, "so there are not a lot of bargains to be had, in our view."

Because of strong oil and natural gas prices, E&P firms are "enjoying cash flow, and they may not be willing to sell at this time," he said. Also, buyers might not be willing to cut deals during a time when commodity prices are close to their peak, he said.

In addition, Allman noted that company management "frequently like being managers of publicly traded companies and may not be so willing to give up their positions."

He added, "There has already been a lot of consolidation in the industry, so the menu of acquisition targets is not as big as it used to be."