Oil Mergers

The energy sector was helped this week by the announcement that Anadarko Petroleum Corp has made a takeover offer for both Kerr-McGee Corp. and Western Gas Resources Inc. The two separate offers came on the same day and added substantial interest medium sized oil and gas companies. The Anadarko combined offers are for more than $21 billion and were at huge premiums to the closing share prices for both Kerr-McGee (40%) and Western Gas (49%). The take over will make Anadarko one of the largest independent oil & gas producers in North America.

The fact that Anadarko has offered such a huge premium has created a stir in the small to medium sized energy sector of the market as anticipation of additional consolidation moves investors into other potential candidates. At this point investors are being rewarded by owning just about any of this sector of the market. Time will tell which companies has assets and reserves that make them attractive take over targets. I would expect this sector to sell off over the next few weeks as cooler heads prevail not all of these companies are going to warrant a 40% plus premium.