Exxon looking to expand its natural gas holdings

| Tuesday, July 26, 2011

Exxon Mobil Corp., the largest U.S. natural gas producer since last year's purchase of XTO Energy Inc., is evaluating more acquisitions with an eye toward expanding its gas holdings.

Exxon is assessing targets in more than a dozen gas-rich shale-rock formations worldwide, Jack Williams, president of the Irving, Texas-based company's XTO unit. The company has spent almost $3 billion to amass shale leases in Texas, Pennsylvania, Arkansas and Louisiana since closing the $34.9 billion purchase of XTO in June 2010.

The company's desire for additional gas coincides with a series of multibillion-dollar shale transactions. BHP Billiton Ltd. agreed to pay about $12.1 billion for Petrohawk Energy Corp. to expand its presence in U.S. shale. Since June 1, companies including Exxon, Marathon Oil Corp. and Malaysia's Petroliam Nasional Bhd have announced at least $7 billion worth of North American shale-gas deals.

Exxon's post-XTO shale acquisitions have included the $695 million purchase of Ellora Energy Inc. in July 2010 and the $1.69 billion transaction for Phillips Resources Inc. and TWP Inc., a pair of closely held explorers active in the Marcellus formation in Pennsylvania and neighboring states.

Exxon is also expanding its international shale-gas reach, starting hydraulic fracturing on formations in Poland this year, agreeing with China Petrochemical Corp. to jointly assess the resource's potential in China.

Williams said he favors transactions that include gas fields adjacent to existing Exxon assets. Three years after Exxon abandoned the Barnett shale in north Texas because of lagging returns, XTO-operated wells in the region are among the most profitable in the company's portfolio, even after a 67 percent slide in U.S. gas prices since 2008, he said.

"The economic returns are very good," Williams said. "We're running economics on every individual well. We're making sure each well makes economic sense before we drill it. We're not drilling anything that's losing money."

Exxon has purchased shale fields that hold more than 10 trillion cubic feet of gas since the XTO transaction, the company's biggest purchase in more than a decade, Williams said. Ten trillion cubic feet of gas is enough to supply U.S. household demand for two years, based on Bloomberg calculations.

Exxon's stock has risen 45 percent since the XTO deal closed on June 28, 2010, outperforming the Standard & Poor's 500 index and U.S. crude oil futures, which increased 25 percent and 27 percent, respectively. The closed down 65 cents Monday at $84.57.

With $12.8 billion in cash and cash equivalents, Exxon has no need for joint-venture partners to help finance its shale projects, said Williams, whose previous assignments for Exxon included overseeing Alaskan oil production from 2000 to 2003.

Rival gas producers such as Chesapeake Energy Corp. have signed joint-venture agreements with international energy companies including Total SA to secure financing amid a gas glut that has depressed U.S. prices for the fuel. Benchmark gas futures traded in New York have averaged $4.30 per million British thermal units this year, 32 percent below the 2006-2010 average.

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