Three Potential Natural Gas Takeover Names

Over the summer, BHP Billiton

announced it was

for $38.75 per share in cash, making a clear statement that BHP sees value in natural gas plays, particularly the Marcellus Shale.

In the past few days, we have seen an increase in takeover rumors for natural gas plays, as natural gas prices have remained fairly depressed this year, trading around $3.72/BTU, despite being up 20 cents today. Generally there is a much smaller spread between the price of oil (currently $85/barrel) and the price of natural gas. However, with vast production and little demand for natural gas in this country, we have seen prices remain depressed for an extended period of time. When BHP acquired Petrohawk Energy, it doubled its exposure in shale gas, and made the diversified mining company one of the top ten oil and gas companies. CEO Marius Kloppers paid a large amount for the company, but BHP is not a company to be particularly loose with its purse strings, and overpay for acquisition targets. It clearly saw value in the space. Now, the rumor mill is starting up again. One of the names that was mentioned in the previous article was Range Resources Corp.

, which has been mentioned fairly frequently this week.

there was chatter that Royal Dutch Shell

had approached Range Resources with a $95 per share bid, and the stock rose sharply. This is not the first ttime in recent memory Range Resources has been subject to rumors. There were rumors in

Generally where there is smoke there is fire in mergers and acquisitions. However, Shell has a large Marcellus Shale exposure already, so the potential buyer may not be Shell. There is a rumor today about Exxon Mobil

potentially going for Southwestern Energy

, though no price has been discussed. Earlier in the week, call volume was

and sometimes that means a takeover is near, as the smart money goes to options, as opposed to common stock. When BHP bought PetroHawk, it paid 18.4 times EBITDA. Southwestern is trading well below the price BHP paid for PetroHawk. The last name that has been mentioned recently is Cabot Oil & Gas Corporation

. Cabot moved in conjunction with Range Resources, and given its size (just under $7 billion market cap), it could be easily acquired by one of the larger exploration & production companies looking to expand its gas portfolio.

Traders who believe that shale gas companies will continue to get acquired at sharp premiums might want to consider the following trades:

Traders who believe that the chatter is nothing more than chatter may consider alternate positions: