Who’s the Next Nat-Gas Takeover Target?

Who would have guessed that 2010 would be the year of the Great American Natural Gas Rush? But companies both foreign and domestic are racing to plant a flag in our shales. Hence the recent flurry of M&A activity, such as Exxon buying XTO , Total SA picking up Chesapeake Energy’s Marcellus assets and CONSOL Energy going after the Marcellus holdings of Dominion Resources .

  • Cramer’s 5 Obama-Proof Dividend Plays

And there are even more takeovers to come, Cramer said Friday.

Sure, nat gas prices have fallen and the resultant stocks have taken a hit. But investors need to know that there are two ways to value a company: its share price, or what the market is willing to pay for the stock; and what a potential acquirer is willing to pay for the company. It’s this second valuation method that matters the most right now, Cramer said. Because given all of these deals, he bets natural-gas assets will fetch a high price on the open market.

So who’s the next likely target?

Cramer thinks that SandRidge Energy would make a good one. SandRidge, whose business is 48% oil and 52% gas, operates in West Texas, Oklahoma and the Permian Basin, and the company is sitting on 1.3 trillion cubic feet of proved reserves. Then there’s another 15.5 cubic feet of reserve potential on top of that. Cramer also likes the bloodlines here, as CEO Tom Ward was a co-founder of Chesapeake.

The stock is a better-than-average speculation play, Cramer said, because it’s just a couple of points off its 52-week low. So if stocks drop as a result of a new health-care bill, SD is less likely to take a hit.

Of course, there’s a reason SandRidge is trading at such a low level, namely about $7.50. The company’s nat-gas production isn’t hedged after 2010, and, more importantly, there’s $2.59 billion on the balance sheet. That’s about double the leverage as its peers, and analysts worried that SD would be in trouble if nat-gas prices didn’t recover by 2011.

But Cramer is far less concerned. The debt doesn’t come due until 2014, making short-term speculation a safer bet. Not to mention, he thinks SandRidge’s takeover potential isn’t yet priced into its stock. Nor is the possibility that the company’s financial situation could improve. Even the analysts – seven buys, nine holds – have an average target price of $12.50 for SD, or nearly 70% higher than Friday’s close.

With the nat-gas rush upon us, Cramer thinks another takeover is likely. He’s guessing SandRidge is next. But the company “will do just fine,” he said, “even if it’s not acquired.”

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com