4 Takeaways From Exxon's Big Buy

The world's largest energy company makes an enormous bet on natural gas, to the tune of $41 billion

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While climate talks in Copenhagen stall and un-stall, blue-chip oil hegemon ExxonMobil made a big purchase Monday, snapping up the U.S.'s largest natural gas producer XTO Energy for $41 billion--a huge deal for the year, as well for Exxon. Analysts think the move may trigger more acquisitions in the energy industry, where firms are laying their bets for the next big energy source. Some are asking if Exxon's enormous bet on natural gas will pay off, given that natural gas prices are still scraping bottom. The big takeaways:

  • An Unusually Big Bet Cyrus Sanati at the New York Times's Dealbook blog goes right to the core of the matter. "Exxon is not a company known for making rash moves. In fact, it is viewed largely as the most conservative company in what is arguably a very conservative industry. So some analysts were surprised by its decision to acquire a company that gets a large portion of its production from somewhat unconventional sources with limited export abilities." Despite an oversupply of cheap natural gas, Sanati says "Exxon is making a bet that demand for natural gas will rebound and continue its steady march upward, especially in the United States."
  • Exxon May Have Overpaid, writes Michael Corkery at the Wall Street Journal. Corkery notes that Exxon's stuck tumbled because the price paid for the company was greater than what the natural gas is worth. ""Exxon does not make bad acquisitions,'' Oppenheimer analyst Fadel Gheit. It is possible, however, that the Exxon deal machine could be rusty. XTO is the first major acquisition Exxon has made of another large company in nearly decade."
  • Explains Exxon's Natural Gas Ads, writes Keith Johnson at the environmental blog for the Wall Street Journal. "Exxon's been amping up the rhetoric about the role that natural gas will play in America's energy future--especially the unconventional reserves that have spurred a big increase in U.S. gas production. In the company's most recent Energy Outlook, it estimates that unconventional gas will provide more than 50% of U.S. supplies by 2030....The deal suggests that Exxon is pretty confident that natural gas prices will rebound from their recent low levels."
  • A Play for Shale Gas, writes Miles Johnson at the Financial Times. He notes that Exxon may move into the shale gas industry-- which has "a presidential seal of approval. Last month the Obama administration pinpointed shale as a solution for lowering North American greenhouse gas emissions." Johnson also lists rivals who have bet on shale gas: "BP, BG Group, StatoilHydro and Eni have all bought into the US gas industry over the past year to gain access to the sector. In this sense Exxon's move can be interpreted as a defensive one."
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