This morning’s announcement of Exxon Mobil’s (XOM) acquisition of XTO Energy (XTO) for $31 billion in stock plus the assumption of $10 billion in XTO debt might be the spark to more deals in the energy sector. There are some handsome prospects out there, and if a buyer can print its own money to do the deal, we could see some real action here.

The top of any list of potential targets would have to be Chesapeake Energy (CHK) with its reserves of around 12 trillion cubic feet of natural gas. The company sold off assets worth about $10 billion in 2008, but sales in 2009 have been less than $2 billion. Chesapeake has significant reserves in the major U.S. shale gas plays such as the Barnett, Fayetteville, Marcellus and Haynesville deposits. Even with today’s bump in share prices, the company’s market cap is quite reasonable at around $15 billion.

Earlier this year, BP plc (BP) was rumored to be interested in buying Chesapeake, but nothing ever came of it. Exxon’s move today could re-kindle BP’s interest in Chesapeake.

Another potential target is Devon Energy (DVN) with a market cap of around $30 billion at today’s price. Devon owns much of the best property in the Barnett shale, and its forward PE ratio of around 10.5 is pretty low, even in today’s market.

A third possible target is EOG Resources (EOG) with a market cap of about $23 billion, nearly identical with XTO’s $24 billion. The company’s natural gas reserves total about 7.5 trillion cubic feet. The one downside to EOG is its very high forward PE ratio near 24.

What makes natural gas so attractive now is the relatively straightforward process now available to extract gas from shale deposits. Shale wells produce high volumes very quickly returning investment in the wells nearly immediately.

Natural gas is also more likely to become a larger part of the country’s electricity generation as older, dirtier coal-fired plants are forced to close down if they cannot be retrofitted to reduce carbon dioxide emissions. Natural gas power plants, especially the integrated gas-combined cycle plants, are very clean and relatively cheap compared with clean coal technology.

Finally, buying proven reserves is much cheaper and surer of success than any exploration program an integrated oil company could embark on. More action in energy acquisitions is almost a sure thing now.

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