Analysts for a while have been buzzing about Exxon’s position, speculating as to whether, or when, the world’s largest publicly traded corporation will make a bid to acquire a competitor.  You could make an argument that Exxon (XOM: 71.28, 0.00 (0.00%)) is currently in the best shape of any financial company in the history of the world.  Their net income for the third quarter of 2008 alone was over $14B dollars and they currently have $38.43B dollars in cash, ready to be deployed.  On top of this mountain of greenbacks, they also have roughly $165B in repurchased stock.  Exxon has been fairly quiet on the M&A front since they bought Mobil last decade, but many feel things could change with the recent collapse of crude oil prices.  I would like to take a look at a few potential targets for Exxon as well as a few other options that I see very feasible.

Apache Corp.

Apache Corp. (APA: 68.15, 0.00 (0.00%)) is one of the largest exploration and production companies in the world with excellent geographical resource exposure, something that Exxon dearly covets.  Apache also has a stronghold on the Southeast Asian and Australian natural gas markets, two areas that Exxon would be very wise to enter.  Apache also has the scale that would lead to a meaningful acquisition for Exxon.  Even though Apache looks like a perfect target for Exxon’s management, it is very unlikely that a deal like this would occur because Apache is extremely sound financially.  Apache has seen positive free cash flow for the past 22 years.  This trend is likely to continue even in this financial crisis.  The premium that Exxon would have to pay to acquire Apache would make the relative value of such a deal extremely unfair.

Chance of occurring: <5%

Anadarko Petroleum

Anadarko Petroleum (APC: 36.24, 0.00 (0.00%)) is a company similar to Apache but with less of a natural gas bias.  Anadarko has excellent exposure to Africa, another area that could be lucrative for Exxon to enter.  Anadarko had built up a sizable amount of debt in 2006 and 2007 and it seemed like they could have possibly been a takeover target but their CEO Jim Hackett has done an excellent job of paying down this debt and managing the company over the last few years.  This is another situation where an acquisition would be unlikely, although slightly more likely than an acquisition of Apache.

Chance of occurring: <10%

Chesapeake Energy Corp.

Chesapeake Energy (CHK: 17.12, 0.00 (0.00%)) has been all over the news over the course of the last year due to their stock’s roller coaster ride.  Nobody was hotter than Chesapeake during the energy boom and no one has been in worse shape (until recently) when energy commodity prices came crashing down.  Exxon’s natural gas exposure is not nearly high enough when considering the likely shift in the world’s infrastructure under the new environmentally conscious hydrocarbon man, and Chesapeake is the leading natural gas producer in the United States.  Chesapeake also has massive leaseholds in the Haynesville Shale, the United States foremost natural gas play.  They have superb management with CEO Aubrey McClendon and I doubt he would let them go down without a fight or a great offer.  This acquisition of Chesapeake has a higher probability of getting done, as it makes a lot of sense for Exxon going forward.