Exxon Mobil's planned $40 billion, all-stock purchase of XTO Energy is all about unconventional natural gas, say analysts (over and over again), and represents a classic Exxon strategy: watch and wait while others make early moves on a prospect then make a bold, decisive move to get a key piece of the pie. Oh yeah, and pay in cash.
Was this expected?
Not exaclty. "WOW! Didn't see this coming," say the folks at Tudor Pickering & Holt.
How serious is Exxon about making stuff like shale gas a bigger part of its future? According to their release:
Following the transaction closing, ExxonMobil intends to establish a new upstream organization to manage global development and production of unconventional resources, enabling the rapid development and deployment of technologies and operating practices to increase production and maximize resource value. The new organization will be located in Fort Worth, Texas, in XTO's current offices.
What does it mean for other E&P companies? Simmons & Co. asks:
Also at the Chronicle:"This transaction will likely set a bid under the E&P group today as the best capitalized and historically most conservative company moves decisively further into unconventional NAM natural gas. The transaction can't help but imply a vote of confidence in both the potential resource size in shale gas and in the majors outlook for North American natural gas prices (XOM holding more exposure to swing Qatari LNG of any major). Companies that will likely garner immediate attention as take out candidates are CHK, EOG, SWN, RRC, APC, DVN, etc.">>>MORE
Exxon's XTO deal could quicken pace of gas investment
With its deal to buy a Fort Worth based energy independent, oil giant Exxon Mobil Corp. set the pace for what analysts predict could be a rush of new investment in North American natural gas—a surge pushed by low prices, new extraction methods and demand for cleaner-burning fuel.
Exxon Mobil said today it will acquire XTO Energy for $31 billion and assume $10 billion in debt, banking on the future of natural gas as an accessible fuel source that may be more valuable in light of tightening environmental regulations, since natural gas emits less greenhouse gas than other fossil fuels.
The deal, subject to approval of both companies’ shareholders, would be a massive acquisition for Exxon Mobil, the world’s largest publicly traded oil company, which hasn’t had a merger since it acquired Mobil for $74 billion a decade ago. And it confounded expectations of analysts who consider Exxon the most cautious and conservative of the major energy companies.
"It’s somewhat a surprise that they’re first out of the bag," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business. "They’ve traditionally had the reputation of being the best managed, so maybe there’s something to read there in terms of why they moved first. Clearly they see upsides here that they’ll be able to leverage elsewhere."
Natural gas for January delivery closed at $5.32 per million British thermal units, up 16.9 cents, in trading today on the New York Mercantile Exchange. Less than two years ago, in the summer of 2008, the price surpassed $13.
With prices low, and the possibility of carbon emission caps looming, analysts expected it would be just a matter of time before one of the major energy companies took a plunge into the natural gas market. Now they expect others to follow suit.
"I think this is the first domino to fall," said Curtis Trimble, a Houston-based analyst for Natixis Bleichroeder. "In future weeks, months or quarters we can expect to see other deals as well."
That means American independent oil and gas producers such as Chesapeake Energy, Devon Energy and The Woodlands-based Anadarko, may get a look from other energy companies seeking an entrée into the gas market.
"I think it’s definitely a validation of the value of natural gas," said Anadarko spokesman John Christiansen. He deflected questions of whether Anadarko anticipates a merger of its own.....MORE
