Oil and gas leads S&P sectors, with shale producers rising on takeover talk
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Energy tops Monday's S&P sector leaderboard, +0.8%, even as U.S. crude oil closed below $80/bbl for its lowest settlement in a week.
Shale producers are moving higher, as reports of Exxon Mobil's (NYSE:XOM) interest in a potential deal for Pioneer Natural Resources (NYSE:PXD) has traders betting on potential takeover targets for Big Oil companies.
Pioneer (PXD) +6.4% after jumping as much as 8.5% for its biggest intraday gain since August 2021, helping lift shale oil peers including Diamondback Energy (FANG), +2.1% after rising as much as 4%, and Devon Energy (DVN) +1.3% after climbing 3% earlier.
Truist analyst Neal Dingmann said the Permian Basin will be the hottest target for deal activity, as many existing companies want to beef up their positions in the region, and he sees Exxon (XOM) and rival Chevron (CVX) will be on the hunt, with Diamondback (FANG), Devon (DVN), Coterra Energy (CTRA), APA Corp. (APA) and Permian Resources (PR) as firms that "could remain active in the M&A market."
While Stifel analyst Derrick Whitfield sees an imminent deal for Pioneer (PXD) as unlikely, if Exxon (XOM) does buy the company, then Diamondback (FANG) and Permian Resources (PR) would be "the best derivatives," with Diamondback the closest peer to Pioneer.
"A substantial premium would be required as Pioneer has time on its side, citing a multi-decade drilling inventory in the Midland basin that bests almost all independents," Cowen analyst Jason Gabelman said.
ETFs: (NYSEARCA:XLE), (XOP), (USO), (BNO), (UCO), (DBO), (SCO), (USL), (DRIP), (GUSH), (USOI), (NRGU)
Front-month Nymex crude oil (CL1:COM) for May delivery closed -1.2% to $79.74/bbl, its lowest settlement since before Saudi Arabia announced the latest surprise OPEC+ production cuts.