Leading energy companies ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) are no strangers to the merger-and-acquisition market. Both have made big splashes over the years, which has enabled them to grow to their current size. While they haven't completed a notable acquisition in a few years, they're looking for their next deal.

That was evident in the comments from executives at both companies at a recent industry conference. And that's why investors shouldn't be surprised if either one makes a big move in the coming year.

A person near an oil pump with the sun setting in the background.

Image source: Getty Images.

Open for business

Chevron has already tried making a big splash. It stunned the oil market earlier this year by bidding $33 billion to acquire Anadarko Petroleum. While Anadarko would have been a perfect strategic fit for Chevron, Occidental Petroleum (NYSE:OXY) fought aggressively to gain control of Anadarko and its position in the Permian Basin. Occidental prevailed, which left Chevron to walk away with a $1 billion breakup fee.

Despite that ordeal, Chevron remains open to acquisitions. "We're always looking," stated Jeff Gustavson, the VP of its Mid-Continent business, at a recent industry conference. The company aims to take an "opportunistic" approach, he said, since it's not under "any pressure to transact." That's because Chevron has plenty of fuel to grow production and shareholder returns in the near term. However, if it found the right deal to accelerate its ability to create value, it wouldn't hesitate to pursue that opportunity.

Exxon, meanwhile, hasn't made a notable deal since it bought privately held Bass in early 2017 for $5.6 billion. That deal doubled Exxon's resources in the Permian Basin, giving it the fuel to grow its production in that region at an accelerated pace in the coming years.

Thanks to that deal and its needle-moving offshore Guyana development, Exxon is on track to more than double its earnings and cash flow by 2025 with no improvement in oil prices. However, that doesn't mean the company won't consider an acquisition. CEO Darren Woods told investors at a recent industry conference that "if there is the opportunity to acquire something that brings unique value to ExxonMobil, we'll be in a position to transact on that." The company is keeping what he called a "watchful eye" for deals given the slump in the stock prices of Permian-focused producers in the past year. However, while the company expects further industry consolidation in the region, it's not in a rush to make a deal, with Woods noting that "time's on our side."

An oil pump at dusk.

Image source: Getty Images.

Plenty of options

While drillers focused on the Permian Basin have undergone some consolidation in recent years, there is still a long list of companies focused on the region. And that means Exxon and Chevron have plenty of options.

When Chevron made its initial bid to buy Anadarko, analysts quickly speculated on which targets would be next. An analyst at Tudor Pickering, for example, thought leading Permian drillers Pioneer Natural Resources (NYSE:PXD) or Concho Resources (NYSE:CXO) would be ideal fits for ExxonMobil, as they'd help plug a hole in its portfolio. That analyst also thought Royal Dutch Shell might feel pressure to add to its Permian acreage and could acquire smaller Permian drillers like WPX Energy or Cimarex Energy. An analyst at BP Capital, meanwhile, thought EOG Resources, Parsley Energy, or Occidental Petroleum could be targets for big oil players looking to bulk up on the Permian -- though Occidental would make sure it wasn't one by going on the offensive and acquiring Anadarko. 

While big oil companies have plenty of options, that doesn't mean they'll make a deal anytime soon, since there's a disconnect between what they're willing to pay and what sellers believe their companies are worth. This value disconnect is leading many Permian drillers to start buying back their shares to help narrow the gap. Pioneer Natural Resources, for example, has already spent more than $500 million to repurchase about 2% of its outstanding shares. It plans to aggressively buy back its stock in the coming quarters since they continue to lose value despite its strong operations and growing free cash flow. Concho Resources, meanwhile, recently sold an asset so that it could jump-start a share repurchase program given the slide in its stock this year. However, if these buyback plans don't work in boosting share prices, then these drillers might be more willing to consider selling.

Expect big oil to be active

ExxonMobil and Chevron have both made it clear that they'd like to boost their position in the Permian Basin if the right deal comes along. While they plan to be patient, there are so many potential acquisition targets in the region that it seems likely one will eventually be willing to sell. That's something investors should keep an eye on, since a needle-moving deal could help accelerate either company's already attractive growth prospects.