TXCO Strategic Alternatives Review Signals Looming M&A
February 12 2009 - 1:52PM
Dow Jones News
Independent oil and gas company TXCO Resource Inc. (TXCO) said
Thursday it begun a strategic alternatives review that includes a
merger or sale - a sign that lower oil prices are forcing small
firms to seek transactions.
The San Antonio, Texas, company - whose assets are concentrated
in the Maverick Basin in southwest Texas - said no formal decision
have been made and no agreement have been reached. It added that
any development from the review will be disclosed after the board
of directors approves a definitive transaction.
Analysts seen TXCO's move as an illustration of what the energy
sector is likely to see in the next months, when small companies
with valuable acreage but financial bottle necks will try to make
deals with cash-rich major oil companies such us Exxon Mobil Corp,
(XOM) or large independents like Apache Energy Corp. (APC).
"The energy sector is going through probably one of the most
difficult downturns and going into 2009 we expect much more of
these announcements to happen," said Irene Haas, analyst at
Canaccord Adams.
Years of high commodity prices have left some oil companies
overstretched with debt to finance ambitious growth plans and other
flush with cash, creating a fertile field for a wave of mergers and
acquisitions. Lately, opportunities have opened up, as the
deepening financial crisis has exacerbated the drop in oil prices
as well as financial woes of smaller companies. Oil futures on the
New York Mercantile Exchange currently trade around $35 a barrel,
more than 75% below the all-time high hit in July 2008.
Shares of TXCO were trading 28 cents up to $46.27 in mid-day
trading.
TXCO's capital spending budget for 2008 was about $130 million,
but this year the company is expected to spend only $50 million - a
budget that has crippled its ability to develop its assets by its
own.
"The company realizes that in order to take some of their
projects from concept to reality is going to take a lot of
capital," says Philip McPherson, senior analysts for the energy
group of Global Hunter Securities, LLC. "A sell or a merger could
bring a larger a player in the basin and allow them to realize the
value of some of these assets."
Haas said that investors are likely to receive the announcement
in a neutral way until some tangible transaction occurs. The
company said there can be no assurance that any particular
alternative will be pursue or that any transaction will occur.
"We remain in an early stage of development, considering the
large acreage position we have for a firm our size and the
potential of our multiple resource plays," said TXCO Chief
Executive James E. Sigmon. "We are exploring all strategic
alternatives to assure that we can maximize value for our
shareholders as we adapt to the industry's current, unstable
financial and commodity price environment."
TXCO said Goldman Sachs is its financial advisor.
-By Isabel Ordonez, Dow Jones Newswires; 713.547.9207;
isabel.ordonez@dowjones.com
Order free Annual Report for Anadarko Petroleum Corp.
Visit http://djnewswires.ar.wilink.com/?link=APC or call
1-888-301-0513
Order free Annual Report for TXCO Resources Inc.
Visit http://djnewswires.ar.wilink.com/?link=TXCO or call
1-888-301-0513
Order free Annual Report for Exxon Mobil Corporation
Visit http://djnewswires.ar.wilink.com/?link=XOM or call
1-888-301-0513