N Mobil, the world’s largest oil group, expanded in to the natural gas market yesterday, buying XTO Energy in an all-stock deal valued at about $41bn (£25bn).
The purchase gives Exxon a major foothold in the US natural gas market, which is seen as an environmentally cleaner fuel than coal. “Natural gas is expected to be the fastest growing of the major energy sources; it's going to grow at a substantially faster rate than oil or coal,” Rex Tillerson, Exxon’s chief executive, said yesterday.
XTO, based in Texas, is a specialist in extracting gas from areas known in the industry as “unconventional”, such as shale or sand, which require advanced drilling techniques.
Exxon, like other major oil companies, has struggled to increase its oil and gas reserves in recent years. Tillerson said XTO, which owns resources equivalent to 45,000m cubic feet of gas and has operations across the US, would increase Exxon’s resource base about 10 per cent.
“This deal provides Exxon with some domestic momentum it didn’t have,” John Olson, a fund manager at Houston Energy Partners, said.
Analysts hope the deal will spark further consolidation in the energy sector as cash-rich companies like Exxon move to snap up smaller players with attractive assets. Shares across the sector rose yesterday in anticipation of a rush of takeovers.
Under the terms of the transaction, XTO shareholders will get 0.7098 Exxon shares for each XTO share. The offer values the shares at 25 per cent premium to Friday’s closing price of $41.49. The total deal is worth $41bn, including about $10bn in XTO debt.
The buyout is the sixth largest corporate deal of 2009 worldwide and is Exxon’s largest move since the merger of Exxon and Mobil in 1999.