With its balance sheet in comfortable shape, ExxonMobil can probably afford to buy just about any company it wants.

“They must have done their homework,” said Fadel Gheit, an analyst for Oppenheimer & Co., in an interview with CNBC. “Exxon does not do anything like that lightly. They are buying one of the best non-conventional gas suppliers in the world.”

But that’s not the way things work in Irving. The company does not make rash decisions. It spends its money wisely. So to purchase XTO, one of the leading developers of unconventional gas in North America, must mean that the world’s largest oil company sees a bright future in natural gas.

“They must have done their homework,” said Fadel Gheit, an analyst for Oppenheimer & Co., in an interview with CNBC. “Exxon does not do anything like that lightly. They are buying one of the best non-conventional gas suppliers in the world.”

Bruce Bullock, director of the Maguire Energy Institute at SMU, added, “ExxonMobil’s purchase of XTO indicates the relative attractiveness of the US natural gas market as an investment and may signal further consolidation to come.”

And Tom Schrader, managing director for US Equity trading at Stifel Nicolaus Capital Markets in Baltimore, told CNBC, “Natural gas is trading at historical lows. Exxon is making a bullish statement about natgas prospects, and if others agree, you could see more deals like this. But only time will tell.”

The purchase is an all-stock transaction valued at US $41 billion. ExxonMobil has agreed to issue 0.7098 common shares for each common share of XTO. This represents a 25% premium to XTO stockholders. The value includes $10 billion of existing XTO debt and is based on the closing share prices of ExxonMobil and XTO on Dec. 11, 2009.

ExxonMobil chairman and CEO Rex W. Tillerson said the agreement is “good news” for the American economy and energy security as it will create jobs and spur investment in natural gas resources.

XTO’s resource base is 45 Tcf and includes shale gas, tight gas, coalbed methane, and shale oil. Following the transaction, subject to approval by XTO stockholders and regulatory clearance, ExxonMobil will establish a new upstream organization to manage global development and production of unconventional resources. The new organization will be based in Fort Worth, Texas.

Tillerson added that the agreement is consistent with ExxonMobil’s business model, which is focused on sustainable, long-term value creation.

It’s also good news for the domestic natural gas industry. “Exxon is the head of the class and will dictate the tempo going forward,” Gheit said. “I would expect more deals to come in the next three to six months. We have been waiting for consolidation for almost a year now, and finally we see one big one going forward.”

Comments