Exxon Mobil’s announcement that it will buy XTO, a natural gas producer, in an all-share agreement valued at $31 billion, sparked speculation that other deals in the sector will follow.
The transaction, the biggest US energy and power deal in nearly a decade, marks a dramatic shift by the world’s largest oil group to take a large bet on US “unconventional” gas production, which extracts gas from unusual sources such as shale.
It also marks a big bet on natural gas, a cleaner-burning fuel than oil, at a time when governments around the world are seeking to combat global warming by reducing carbon emissions.
Shares in a range of smaller energy companies with natural gas interests surged on the news. Analysts said that potential targets could include Andarko Petroleum, Range Resources, Devon, EOG Resources, Southwestern Energy, PetroHawk Energy, Encana and Chesapeake Energy.
The deal is the biggest in the US since Chevron’s $43.3 billion acquisition of Texaco in October 2000, according to Thomson Reuters. It will boost Exxon’s presence in the natural gas industry, at a time when natural gas is driving electricity generating capacity additions.
Since it was created 23 years ago XTO, which produces about 5 per cent of US natural gas supply, has become a leading “unconventional” natural gas producer, building up its business through a string of acquisitions.
News of the deal yesterday coincided with new forecasts from the Energy Information Administration suggesting that total domestic natural gas production in the US will grow from 20.6 trillion cubic feet in 2008 to 23.3 trillion cubic feet in 2035, driven in part by production from shale. Unconventional gas production already accounts for 50 per cent of the US total and is expected to rise to 60 per cent by 2030.
Under the terms of the transaction, XTO holders will get 0.7098 share of Exxon for each share of XTO. This values the stock at $51.69, a 25 per cent premium to Friday’s close of $41.49. The transaction value includes $10 billion of existing XTO debt.
Rex Tillerson, the chairman and chief executive officer of Exxon, said he had been attracted by XTO’s outstanding resource base — equivalent to 45 trillion cubic feet of gas — and its strong technical expertise. He added that Exxon intended to establish a new upstream organisation, located in XTO’s offices in Fort Worth, Texas, to manage global development and production of its unconventional resources.
Bob Simpson, the chairman and founder of XTO, said that the deal would help XTO move to a new level and to “unlock more value than we can do on our own”.
Eric Chenoweth, an analyst at Morningstar, said: “Other major integrated firms, both European and domestic, have shown greater interest in US unconventional gas over the past year; however, these have often involved smaller partnerships.”
It also marks a big bet on natural gas, a cleaner-burning fuel than oil, at a time when governments around the world are seeking to combat global warming by reducing carbon emissions.
Shares in a range of smaller energy companies with natural gas interests surged on the news. Analysts said that potential targets could include Andarko Petroleum, Range Resources, Devon, EOG Resources, Southwestern Energy, PetroHawk Energy, Encana and Chesapeake Energy.
The deal is the biggest in the US since Chevron’s $43.3 billion acquisition of Texaco in October 2000, according to Thomson Reuters. It will boost Exxon’s presence in the natural gas industry, at a time when natural gas is driving electricity generating capacity additions.
Since it was created 23 years ago XTO, which produces about 5 per cent of US natural gas supply, has become a leading “unconventional” natural gas producer, building up its business through a string of acquisitions.
News of the deal yesterday coincided with new forecasts from the Energy Information Administration suggesting that total domestic natural gas production in the US will grow from 20.6 trillion cubic feet in 2008 to 23.3 trillion cubic feet in 2035, driven in part by production from shale. Unconventional gas production already accounts for 50 per cent of the US total and is expected to rise to 60 per cent by 2030.
Under the terms of the transaction, XTO holders will get 0.7098 share of Exxon for each share of XTO. This values the stock at $51.69, a 25 per cent premium to Friday’s close of $41.49. The transaction value includes $10 billion of existing XTO debt.
Rex Tillerson, the chairman and chief executive officer of Exxon, said he had been attracted by XTO’s outstanding resource base — equivalent to 45 trillion cubic feet of gas — and its strong technical expertise. He added that Exxon intended to establish a new upstream organisation, located in XTO’s offices in Fort Worth, Texas, to manage global development and production of its unconventional resources.
Bob Simpson, the chairman and founder of XTO, said that the deal would help XTO move to a new level and to “unlock more value than we can do on our own”.
Eric Chenoweth, an analyst at Morningstar, said: “Other major integrated firms, both European and domestic, have shown greater interest in US unconventional gas over the past year; however, these have often involved smaller partnerships.”
Source: The Times
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