In the latest sign of the growing importance of natural gas in the nation's energy mix, Exxon Mobil Corp. yesterday said it would pay $41 billion for XTO Energy Inc., a major player in unconventional gas plays such as Pennsylvania's Marcellus Shale.
Exxon Mobil's acquisition of the Fort Worth, Texas, gas development company is an endorsement of new resources such as shale gas, which have become accessible in recent years by virtue of horizontal drilling techniques and hydraulic fracturing.
"This is obviously a vote that natural gas will play a more important part in the U.S. energy mix, and they want to share in this growing area," said Teri Viswanath, director of commodities research with Credit Suisse in Houston.
Exxon Mobil chief executive Rex Tillerson said in a conference call with analysts that the company values XTO for its expertise in "unconventional" natural gas drilling - including shale gas, coalbed methane, and "tight gas" locked in nonporous rock.
XTO's unconventional gas holdings, all in the United States, complement Exxon Mobil's international presence. Natural gas would represent 45 percent of the companies' combined production.
XTO has 280,000 acres under lease in the Marcellus Shale, a formation underlying parts of Pennsylvania, New York, Ohio, and West Virginia. XTO holds about 35 of the 2,431 active Marcellus well permits in Pennsylvania, concentrated in Lycoming County east of Williamsport and in Westmoreland and Indiana Counties, east of Pittsburgh.
Exxon Mobil agreed to exchange 0.7098 of a share of common stock for each common share of XTO, a 25 percent premium. The deal was valued at $31 billion, plus about $10 billion in XTO debt.
Shares of other Marcellus gas drillers, including Cabot Oil & Gas Corp., Range Resources Corp., and Chesapeake Energy Corp., soared as much as 9 percent in yesterday's trading.
New advances in unconventional gas extraction, which often entails expensive techniques that fracture underground rock to liberate locked-up gas, are responsible for a dramatic reappraisal of worldwide gas reserves.
The U.S. Energy Information Administration, in its annual energy outlook, yesterday projected that U.S. shale-gas production would grow from 7 percent of the natural gas supply last year to 26 percent in 2035.
Among American unconventional plays, Exxon Mobil and XTO both have a presence in the Piceance Basin in Colorado, the Haynesville Shale in Louisiana and Texas, the Barnett Shale in Texas, the Bakken Shale of North Dakota, and the Fayetteville Shale of Arkansas.
In Pennsylvania's Marcellus, XTO holds leases on 7,227 acres of state forests, and Exxon Mobil acquired leases on 19,439 acres of state lands in 2008 Department of Conservation and Natural Resources auctions. Exxon has not developed its Pennsylvania leases.
XTO has 980 active wells in Pennsylvania, mostly shallow conventional wells.
The entry of big players such as Exxon Mobil - it is 10 times as large as XTO - suggest that more capital will flow into gas development in Pennsylvania, a market traditionally dominated by smaller independent drillers.
Additional scale is needed to develop shale formations, XTO chairman Bob Simpson, 61, said on a conference call.