Chevron's Offer For Atlas Boosts Natural Gas Sector

Chevron Corp.'s (CVX) agreement to buy Atlas Energy Inc. (ATLS) for $3.2 billion raised expectations Tuesday that other natural gas companies could be ripe for deals.
Atlas is a leading producer in the Marcellus shale, one of the many natural-gas-rich rock formations in the U.S. that have led to a surge in production of the commodity. Chevron's offer for the company boosted other natural-gas stocks, whose valuations have been pressured lately by weak natural-gas prices.
"The best time to acquire assets is when they're out of favor," Argus Research Co. analyst Phil Weiss said.
Among the biggest gainers Tuesday were the natural gas companies that have major stakes in the Marcellus shale, including Range Resources Corp. (RRC), up 7.6% to $43.81, Cabot Oil & Gas Corp. (COG), up 4.4% to $33.98, and Rex Energy Corp. (REXX), up 5.4% to $11.49.
Meanwhile, Petrohawk Energy Corp. (HK) gained 6.9% to $18.99, GMX Resources Inc. (GMXR) climbed 9.4% to $4.88 and Southwestern Energy Co. (SWN) rose 4.2% to $38.80.
The offer for Atlas has "definitely reawakened the gas names," Jefferies & Co. analyst Subash Chandra said, but he said he's skeptical the gains are sustainable. He doesn't think the other companies in the group are as attractive as Atlas, pointing to concerns about the companies' cash flow and high spending levels.
Other analysts were more bullish. The Chevron offer for Atlas is one of several recent proposed transactions that show these stocks should be trading at higher values, Global Hunter Securities analyst Michael Bodino said.
Last week Exco Resources Inc.'s (XCO) shares popped after the natural gas producer's chief executive offered to take the company private, valuing the Dallas company at $4.4 billion. And last month Quicksilver Resources Inc. (KWK) said a group of shareholders wants to review alternatives for the natural gas company that include taking the company private for a "substantial premium."
Bodino said he expects continued consolidation in the natural gas sector as the shale projects mature, making them less risky to invest in.
"This is just part of the evolution of these projects," Bodino said.
Chevron will pay Atlas shareholders $38.25 in cash for each share and a total of 41 million units of the company's limited partner, Atlas Pipeline Holdings LP (AHD), or $5.09 per Atlas Energy share. Chevron will also assume $1.1 billion of debt.
Atlas Energy recently gained 33% to $42.32 as Atlas Pipeline Holdings recently soared 27% to $12.34.
Chevron is the latest energy giant to make a bet on natural gas, following the lead of Exxon Mobil Corp. (XOM), which acquired XTO Energy nearly a year ago. Other oil companies, ranging from BP PLC (BP) to Eni SpA (E), have entered joint ventures or acquired acreage in U.S. shale areas.
The deals are bets that natural-gas prices will get stronger in the long term. The price of the commodity has been pressured during the economic downturn by sluggish demand and large supplies coming from shale formations.
Natural-gas futures on the New York Mercantile Exchange are trading at their lowest level for this time of year since 2002, although they have risen a bit in the last couple of weeks with the approach of winter, the seasonally strong period for the commodity