UPDATE: "Behind Exxon Mobil’s Big Bet on Natural Gas (XTO; XOM; XNG)"
The AMEX Natural Gas Index (XNG) is up just under 5%, with every one of the components in the green.
Shares of Exxon Mobil might be slipping a bit — they’re down roughly 4% — based on the perception that the company could be being a overly generous in the price its willing to by for XTO Energy, especially as natural gas prices have been languishing. Does Exxon see a material bounce-back in gas prices down the line? Does today’s deal mark the start of a boom in majors snapping up exploration and production (E&P) companies? Analysts weigh-in:
Credit Suisse: “The scale and timing of the acquisition may surprise, as U.S. gas markets look set to remain weak into 2010, but [Exxon Mobil] seems prepared to weather some macro weakness for a long term efficient resource play.”
Collins Stewart: “Given the size of the XTO acquisition, the relative weakness in the North American natural gas market, and the fact that it appears XOM is paying a more generous price for XTO’s resources than the value of its own underlying resource base, we expect [Exxon Mobil] to underperform the other integrated oils.”
Goldman Sachs: “The question investors will ask is whether an acquisition of a large-cap E&P is consistent with its returns focus. In our view, Exxon will need to demonstrate that it can develop XTO’s resources at an even lower all-in cost than XTO or other E&Ps; we would be surprised if Exxon management were basing the acquisition on materially higher US natural gas prices.”>>>MORE