Oil majors often try to emulate Exxon Mobil, but may be too late to get into US natural gas

Monday, December 14, 2009

Will oil majors draft Exxon into gas market?

NEW YORK — Shares of natural gas producers jumped Monday as Exxon Mobil Inc.’s $29 billion acquisition of XTO Energy Inc. set off a flurry of talk about more big buyouts.

The acquisition caught many in the industry by surprise, even though the huge bankrolls of major oil producers have led to speculation over the past year that consolidation in the energy sector was imminent.

But Exxon hasn’t made a sizable acquisition since 1999, when it pulled off what was then the largest buyout ever — its $75 billion acquisition of Mobil.

That set off talk of who might follow Exxon, or if anyone even has the financial heft if they wanted to.

A number of analysts say that by Exxon’s own actions, the company may have made it more difficult for competitors to pull off another buyout.

Shares of energy companies like Teradyne Inc. rose by as much as 7 percent.

“High-impact mergers may not be forthcoming due to relatively higher equity valuations for many peers,” said Morgan Keegan analyst Chris Pikul. He added that some majors such as BP and Chevron already have positions in U.S. natural gas through joint ventures.

And when it comes to spending money, no one rivals Exxon. The company, based in Irving, Texas, turned a profit of $45.2 billion last year, breaking its own record for a U.S. company.

“There is really no other integrated oil companies able to withstand an acquisition of this size,” he said.

Exxon is also taking on $10 billion of XTO’s debt.

BMO Capital Markets analyst Dan McSpirit said Exxon, by taking first pick in the industry, may have selected the best company out there in the context of a major oil producer.

“There are only a few of these companies that control land positions of size that could create large-scale operations that would be attractive to a major,” McSpirit said.

If rivals do move in, Devon Energy Corp., Chesapeake Energy Corp., Southwestern Energy Co., Range Resources Corp. and Petrohawk Energy Corp. “share the similar DNA to XTO,” McSpirit said.

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