ExxonMobil agrees $41bn XTO Energy takeover.

ExxonMobil agrees $41bn XTO Energy takeover. December 14 2009 16:36. ExxonMobil, the world’s biggest publicly listed oil company, announced on Monday a $41bn acquisition of XTO Energy that gives it a strong position in the huge onshore US natural gas play and sets out a strategic focus for a cleaner-energy future. Following the completion of the deal, Exxon said it will establish a new organisation to manage global development and production of unconventional resources, enabling the rapid development and deployment of technologies and operating practices to increase production. Unconventional resources include gas contained in shale rock, tightly compressed sands, and coal bed methane. To capitalise on the XTO’s expertise in this area, Exxon will base the organisation in XTO’s Fort Worth, Texas, offices, where it intends to keep the company’s team in place. “What they are signalling with this acquisition is that they understand the importance of gas in their future,’’ said Amy Myers Jaffe, energy expert at the James A Baker Institute for Public Policy. “It’s definitely the fuel of the future.’’ Gas has adequate scale and infrastructure to replace oil in some cases and is about 30 per cent less carbon intensive than oil and about 50 per cent carbon intensive than coal. The fuel is gaining support from lawmakers at a time when the world is looking at ways to reduce carbon emissions. The acquisition could be a bigger win than many realise, Ms Jaffe said, if Exxon’s pilot project to remove carbon emissions from gas works. While Exxon has been building a global liquified natural gas portfolio in recent years, it had nothing of significance in US onshore, unconventional gas. This meant it had so far missed out on the boom, brought on by expertise and technology perfected by the small independents to extract gas from shale rock. These small companies, including XTO, have, in the past three years, grown estimates of US supplies from 30 years, at current usage rates, to 100 years supply, mostly by figuring out how to economically extract gas from shale rock. BP and BG Group of the UK; StatoilHydro, the Norwegian energy company; and Eni, the Italian oil company, have all bought into the US gas industry in the past year to not only produce but take what they learn about extracting gas from shale rock abroad. PFC Energy, a consultancy, estimates advancements made by the independents in developing natural gas from shale could, if taken abroad, more than quadruple gas resources, increasing supplies of this alternative option to greenhouse-intensive oil, coal and oil sands fuels. Yet Robin West, chairman of PFC Energy, noted the onshore unconventional gas industry has been dominated by smaller players than the majors, who specialise in the short-term nature of the play, which requires constant reinvestment and drilling to maintain production. This is at odds with the traditional Exxon strategy of large, long-term, highly efficient assets. “The success of this investment will depend on whether Exxon can keep the XTO culture in its team,’’ he said. ”It’s a different business.’’ The all-stock transaction with XTO provides for Exxon issuing 0.7098 shares for each share of XTO, representing a 25 per cent premium to XTO shareholders. The transaction value includes $10bn of existing XTO debt and is based on the closing share prices of Exxon and XTO on December 11. JP Morgan Securities acted as financial advisors to Exxon and Barclays Capital and Jefferies & Company are acting as financial advisors to XTO.