You have to hand it to the boys at Exxon. When they go shopping they bring a debit card with no limit. The XTO Energy deal is worth $31b. That represents nearly 10% of the market cap for XON. They paid a premium of 25% to get it done. That is a measure of how much this deal meant to them.That's one way to buy storge, in situ.
You can be sure that this deal was looked at every which way before CEO Tillerson said yes. There was a lot of that ‘deep thinking’ going on. At the end of the day I think it was as easy as looking at the futures market.
The closing futures prices for Nat Gas yesterday were as follows:January 2010 = 5.332January 2011 = 6.900
The year over year price differential is $1.568. That is a premium over the near month of 29%. That is a very big number. There are a number of contributing factors to this premium. The most significant of which is the lack of storage capacity and a big enough balance sheet to finance it. No doubt but that the good folks at Exxon will be earning a significant portion of that premium in the years to come....MORE