Exclusive: Whiting Petroleum in deal talks with smaller rival Abraxas Petroleum - sources

(Reuters) - Whiting Petroleum Corp WLL.N, an oil and gas producer with operations in North Dakota and Colorado, is in deal talks with San Antonio-based Abraxas Petroleum Corp AXAS.O, two people familiar with the matter told Reuters.

A deal would increase Whiting’s acreage in the second-largest U.S. shale field by output and spread its overhead costs over greater production, according to one of the people, who spoke on the condition of anonymity as the talks are not yet public.

It was not clear what terms the companies were discussing, although one of the people familiar with the matter described it as an all-stock deal. There is no guarantee they will strike a deal.

Shares in both companies rose in late trading on Monday after Reuters reported on the talks.

Weak oil and gas prices and poor shareholder returns have soured investors on U.S. shale, leaving many producers' shares lower on the year. The S&P Oil and Gas Exploration & Production ETF XOP.N is off 21% this year compared with an 18% gain in the S&P 500 index.

Investors also have punished producers that acquire rivals. Parsley Energy Inc PE.N on Monday lost about 11% of its market value after agreeing to pay $1.64 billion in stock for Jagged Peak Energy Inc JAG.N.

Abraxas CEO Bob Watson said in an email that the company does not comment on market rumours. A Whiting spokesman did not respond to requests for comment.

Investors have called for change at Abraxas, an exploration and production company operating in the Rocky Mountains, the Permian Basin of West Texas, and in Wyoming’s Powder River Basin.

Abraxas on Monday said it had engaged investment bank Petrie Partners for a thorough review of its business and strategic plans after concluding a sale of south Texas assets. The latest review would include “potential alternative transactions that might further enhance shareholder value.”

This summer, Whiting announced a restructuring designed to generate $50 million in annual cost savings and to focus on unconventional assets.

In late trading, Abraxas shares gained 19% to 45 cents apiece, giving the company a market value of about $75 million. Whiting added 1.2% to $7.34. Whiting shares are off about 68% year to date.

Reporting by Jessica Resnick-Ault and Arathy Nair; additional reporting by Jennifer Hiller in Houston; Editing by Tom Brown and Lisa Shumaker