There is sometimes a kernel of truth to rumors, which makes recent Apache (APA) takeover talk intriguing.
Shares of Apache and -- to a lesser extent -- Occidental Petroleum (OXY) traded wildly early Wednesday on a report of an Occidental plan to take over Apache. (Apache shares rose as high as 11% while Occidental shares fell 2%, and both stocks have flattened since then.) The report has since been taken down, but the positive boost to Apache's shares belie the excitement for a deal and says something about the health of merger-and-acquisition activity in the oil and gas space.
Oil and Gas People, an industry job site that also posts news, published the takeover story Wednesday morning, saying that Occidental planned to acquire Apache for $25 billion, a roughly 19% premium to Apache's $21 billion market cap. By midday, the report disappeared from Oil and Gas People's site.
A representative for the website told Real Money that they decided to pull down the story after Occidental denied the rumor. (To be sure, Occidental told Reuters it had no knowledge of any pending transaction.)
A representative from Apache told Real Money that it does not comment on M&A rumors. Meanwhile, Melissa Schoeb, a spokeswoman for Occidental, said the company has no knowledge of the information in the Oil and Gas People report.
This latest rumor lends some weight to talk of consolidation in the oil and gas space following nearly two years of low oil prices. On Monday, for example, Range Resources (RRC) announced plans to acquire Memorial Resource Development (MRD) in a deal valued at $4.4 billion, inclusive of debt. Some have speculated that Royal Dutch Shell's (RDS.A) solid earnings of late puts it in a strong financial position to make an acquisition. And Apache was approached by Anadarko Petroleum (APC) last November but ultimately rejected the offer to explore a tie-up.
Even without Occidental, Apache could still be a target given the prior interest in the company and the current rumors. During February's IHS CERAWeek conference in Houston Bloomberg reported that Stephen Chazen, who was CEO of Occidental at the time, spoke about the difficulty merging oil and gas companies given the hefty debt loads they carry. This statement may rule out Occidental, which is a holding in Jim Cramer's Action Alerts PLUS portfolio, as a potential acquirer.
However, sources close to Real Money suggest that Apache may be willing to be bought by the right suitor. Apache operates in the U.S., U.K., Canada and Egypt. Its U.S. assets are situated throughout the Gulf Coast and Permian Basin, the latter of which is considered a prime area. For example, during Occidental's first-quarter earnings call, new CEO Vicki Hollub said that the Permian region is the company's highest priority for looking for growth and potential acquisitions.
Occidental may not be a suitor for Apache, but as rumors go, where there's smoke, there is usually fire.
This article has been updated to reflect that Occidental had no knowledge of the information in the report by Oil and Gas People.