Shares of Pioneer Natural Resources (PXD 0.23%), Parsley Energy (PE), and Concho Resources (CXO) had all zoomed around 10% higher as of 11:45 a.m. EDT on Friday. Driving the rally in those Permian Basin-focused oil stocks was the news of Chevron's (CVX -0.10%) stunning $50 billion acquisition deal for Anadarko Petroleum (APC).
Chevron agreed to pay $65 per share for Anadarko -- a jaw-dropping 38.9% premium for the oil and gas company. One of the main draws was Anadarko's sizable position in the Permian, which will enhance Chevron's already top-tier footprint there.
Chevron wasn't the only company courting Anadarko -- in fact, it wasn't even the highest bidder. Permian leader Occidental Petroleum (OXY 1.03%) offered $70 per share, according to a report by CNBC. Occidental's bid included more cash, though, which would have also required a shareholder vote. Those and other structural issues led Anadarko to accept Chevron's offer instead.
Occidental Petroleum is now considering its options, according to CNBC. The company could try and outbid Chevron, or it could opt to pursue another target. It's that second possibility that's driving up shares of regional players Pioneer Natural Resources, Parsley Energy, and Concho Resources. Any of those would be a better fit for Occidental, or for other energy players looking to boost their operations in the Permian. That's because each either is or will soon be a pure-play on the Permian Basin. Pioneer Natural Resources, which is working to sell its Eagle Ford Shale assets, is one of the region's leading producers, with its focus on the eastern Midland Basin. Meanwhile, Parsley Energy and Concho Resources have sizable acreage positions across the Midland as well as the Delaware Basin in the west.
Anadarko, on the other hand, is much more diversified. It also has operations in the Gulf of Mexico and offshore of Africa, including a liquified natural gas project in Mozambique. Those assets will slot better into Chevron's portfolio, since it has expertise in both of those areas -- expertise that Occidental lacks.
Meanwhile, Occidental isn't the only company that has shown interest in making a Permian acquisition. Royal Dutch Shell is also looking to bulk up its position in the Permian, and it likely will want to move fast if it intends to buy before valuations loft much higher.
Chevron's M&A move has given a jolt to valuations in the oil patch, as has the market's expectation that spurned suitor Occidental will set its sights on another prize. But beyond that possibility, there's also this to consider: Some of these Permian-focused producers could start feeling the urge to merge, which would improve their scale and enable them to better compete with behemoths like Chevron.