Statoil on the Prowl

 | Aug 19, 2013 | 11:20 AM EDT
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Let the Statoil (STO) speculation begin! This morning, we learned that Statoil is selling $2.65 billion worth of European properties to build a war chest of $7 billion in order to find more oil. So what will Statoil do with the money?

We know that the company is extremely happy with its purchase of Brigham Exploration two years ago for $4.4 billion to get terrific Bakken, North Dakota properties, and it has had a good experience with its joint venture with Chesapeake Energy (CHK) for a slug of Marcellus shale; it paid $3.3 billion five years ago for a 32.5% interest in Chesapeake's acreage in that region.

When Statoil's American representative appeared on "Mad Money" not that long ago, he sang the praises of that buy. Statoil likes buying in the U.S. very much, because the country is very accommodative to those who want to drill for oil

Marcellus gave Statoil premium natural gas assets, and Brigham's assets were centered on oil. Given the company's positive disposition toward the U.S., one can either presume that it might increase its drilling budget for the properties it already owns or put more money to work buying oil companies. We know that Chesapeake, where Carl Icahn just raised his stake to close to 10%, is in flux. Could it sell the rest of its Marcellus position? Given how Cabot Oil & Gas (COG), the primary Marcellus company, keeps finding better and better nat-gas properties, I don't think Chesapeake is a seller. But we know from Continental Resources (CLR), which is primarily a Bakken play, that there's plenty more oil in North Dakota than we first thought and even since the time of Statoil's Brigham buy.

So, perhaps the company reaches out and bids for Whiting Petroleum (WLL), a high-quality producer that has assets not that far from Brigham's. The price tag seems in range, as right now Whiting's market capitalization is about $6 billion, and I presume that Statoil, this terrific Norway-based company, can augment its war chest to a little higher level without stretching its balance sheet. Whiting is down 10% from the high and has delivered decent production growth.

Kodiak Oil & Gas (KOG) would be a less costly way to beef up Statoil's Bakken assets, as it only a $2.5 billion company. Kodiak had been for sale earlier this summer, but nothing materialized. Perhaps it is game on? The worry here is that Kodiak has had inconsistent growth, so why would Statoil want to take a chance, especially considering that it could have swallowed Kodiak with money it had on hand before the big European sale announced today?

Now how about if Statoil wanted to make a move on the most attractive independent company in the hottest exploration area of the country? That would be Concho Resources (CXO), a company that has fantastic Permian assets, including acreage in the Delaware Basin, which EOG Resources (EOG) has told us may be the next big shale play after the Eagle Ford in Texas and North Dakota's Bakken. However, this company has a current market capitalization of $10 billion, so it might be beyond reach.

Finally, there's SandRidge Energy (SD), a perennial for-sale candidate that has a caretaker management and sells for $5. It's a big spec, and at $2.5 billion it can be swallowed easily, but the quality of the assets is in question.

To me, this behemoth is definitely on the prowl. The possibility of an imminent deal can't be ruled out. Statoil has got the money, it loves the U.S., and it's a match that I sense will be consummated in a very short period of time.



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