With the slump in energy prices and the resulting squeeze on margins, consolidation in the oil patch is likely to shift into high gear. "All the majors are looking to expand their reserves in such an environment," says Tina Vital, an oil-and-gas analyst at Standard & Poor's. The latest Street whisper: Amerada Hess (AHC) could be the next target of France's Total Fina Elf--the world's fourth-largest publicly traded oil company, formed in 2000 by the $49 billion merger of Totalfina and Elf Aquitaine.
Hess, which skidded from nearly 80 a share in August to 53 in mid-November, has snapped back smartly, to 69. Some investors think Hess is headed higher, in part because of deal talk. Last August, Hess, with major explorations in the North Sea and Gulf of Mexico, bought Triton Energy, whose recoverable reserves in Equatorial Guinea are estimated at 450 million to 500 million barrels. "Guinea could well be the reason that Total Fina may be interested in Hess," says Vital. The recent oil discoveries in Guinea, she adds, "have been very exciting." Total Fina wants to expand its empire and become one of the world's largest oil companies, says Vital. Some doubt that CEO John Hess, whose family owns 13% of the stock, is interested. "The odds are very low that he would sell," says Fred Leuffer of Bear Stearns. And Eugene Nowak of ABN Amro believes Hess is concentrating on the full potential of the rich Guinea reserves.
Vital, however, figures that Hess may relent if offered the right price. She estimates that Hess is worth $7.8 billion to $8.8 billion, or 88 to 100 a share. Vital expects Hess will earn $5.07 a share in 2002 and $6.97 in 2003, way down from $10.62 in 2001. Total Fina and Amerada didn't return calls. By Gene G. Marcial