Exxon to buy XTO in $41 billion deal

Biggest U.S. oil company seeks to expand its role in the natural gas industry.

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NEW YORK (CNNMoney.com) -- Exxon Mobil said Monday it will buy natural gas producer XTO Energy Inc. for $41 billion in a stock and debt transaction.

The world's largest publicly traded oil company agreed to issue 0.7098 common stock share for each common share of XTO (XTO, Fortune 500), representing a 25% premium to XTO stockholders. The purchase value includes $10 billion of XTO debt and is based on the closing share prices of Exxon (XOM, Fortune 500) and XTO on Dec. 11.

The deal, which is subject to XTO stockholder approval and regulatory clearance, is the largest for Exxon in more than a decade. But it is still not "earth shattering" for a company that has the ability to acquire a company worth more than $200 billion, according to Oppenheimer analyst Fadel Gheit.

"Exxon, like other major energy companies, is running out of investment opportunities," Gheit said. "It sees this as a stable and financially secure investment that's basically in the backyard for all practical purposes."

Without acquiring a company like XTO, Gheit said Exxon could not have secured a large presence in the natural gas industry.

XTO has a resource base equivalent to 45 trillion cubic feet of gas, and includes shale gas, tight gas, coal bed methane and shale oil.

"XTO has a proven ability to profitably and consistently grow production and reserves in unconventional resources," said Bob Simpson, chairman of XTO, in a statement. "As the world's leading energy company, ExxonMobil will build on our success and open new opportunities for the development of natural gas and oil resources on a global basis."

Following the transaction, which is expected to be completed in the second quarter of 2010, Irving, Texas-based Exxon will establish a new organization to manage the development of XTO's resources in the 23-year-old natural gas company's current Fort Worth, Texas, office.

"XTO's strengths, together with ExxonMobil's advanced R&D and operational capabilities, global scale and financial capacity, should enable development of additional supplies of unconventional oil and gas resources, benefiting consumers both here in the United States and around the world," said Rex W. Tillerson, Exxon Mobil's CEO, in a statement.

The agreement will increase Exxon's resource base by 10%, but the energy company will not make a substantial shift in its production balance between oil and natural gas, Tillerson said on a conference call with media.

He added that in addition to expanding its resources, the deal will allow Exxon to apply XTO's expertise to similar types of resources it has acquired around the world.

In its energy outlook released last week, Exxon said energy demand will be 35% higher in 2030 than it was in 2005, and more half of the demand for gas will be met by natural gas, which will grow faster than oil and coal supplies.

Tillerson also said that climate change legislation could impact the fuel mix because higher costs on carbon emissions would impact energy prices and provide incentive to use natural gas. Exxon's energy outlook estimates that natural gas can help reduce power generation emissions by up to 60% compared to coal.

Shares of Exxon fell 3.7% in early trading. Shares of XTO jumped 15.7%.  To top of page

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