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Exxon gets into shale exploration by buying two companies

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Staff and Wire Reports
Thursday, June 9, 2011

Exxon Mobil Corp. said on Wednesday it bought privately held natural gas company TWP Inc. and related Phillips Resources Inc., based in Marshall, for $1.69 billion, picking up about 317,000 acres for exploration in the Marcellus shale basin.

TWP and Phillips Resources are the remaining corporate entities after SteelRiver Infrastructure Fund North America LP acquired Butler-based T.W. Phillips Gas and Oil Co. last month, renaming the natural gas utility as Peoples TWP. TWP Inc. was the holding company for utility T.W. Phillips Gas and Phillips Resources, its drilling and gas production business.

Phillips Resources, owns or operates more than 4,000 producing natural gas wells in Pennsylvania and has operated or participated in the drilling of more than 50 Marcellus shale wells, according to its website. A spokesman could not be reached for comment.

The deal is the latest in a series of acquisitions by large oil and gas companies of Marcellus assets. In December 2009, Exxon Mobil bought XTO Energy for about $41 billion in stock. XTO's holdings include about 280,000 acres in Pennsylvania. And Royal Dutch Shell plc acquired East Resources Inc. of Marshall for $4.7 billion.

The action highlights the importance Exxon is placing on natural gas assets after acquiring XTO Energy, adding one of the leading developers of shale gas and a resource base of 45 trillion cubic feet of gas equivalent.

Exxon has shelled out billions to build its exposure to so-called "unconventional resources," formations like oil and gas shales that require more advanced technology for extraction.

"We believe that the mergers will create significant value by leveraging regional synergies in upstream operations and acreage holdings between XTO Energy Inc and the Phillips companies," said Alan Jeffers, an Exxon spokesman.

Exxon, the largest producer of natural gas in the United States, said the two companies had proven reserves of 228 billion cubic feet equivalent of natural gas. The Phillips companies produce about 50 million net cubic feet per day of natural gas.

At a shareholders meeting last month, Exxon's Chief Executive Rex Tillerson said his company is "positioned to double our U.S. unconventional production over the next decade with an inventory of approximately 50,000 drillable well locations."

Exxon has said it is taking a long-term view of natural gas markets, betting that power generation in developing countries such as China and India will cause demand for the cleaner-burning fuel to surge in coming years.

Natural gas prices have been burdened by heavy supplies and have not closed above $5 per million Btus in New York trading in nearly a year, while crude oil has soared above $100 per barrel.

Last year, Exxon paid around $700 million to buy Ellora Energy, picking up that company's position in the Haynesville shale in Louisiana and Texas.

Exxon's XTO unit will manage the assets. The company said its goal was to retain the companies' employees.

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