HOUSTON, Dec. 15 (Xinhua) -- Exxon Mobil announced Monday it has agreed to buy XTO Energy Corp in a 41-billion-dollar transaction aimed to increase its presence in the natural gas sector on speculation that U.S. emissions restrictions will spur increased demand.
The deal, including 31 billion in Exxon Mobil stock and assumption of 10 billion of XTO debt, would be Exxon's biggest since the Texas-based energy giant purchased Mobil Corp for 75 billion dollars in 1999, and the eighth-largest deal ever in the energy sector.
With the buy, Exxon, the world's largest publicly traded energy company, will become the top U.S. natural gas producer. Exxon just last week approved a 15-billion-dollar natural gas project in Papua New Guinea.
XTO, based in Fort Worth, Texas, is one of the leading U.S. developers of unconventional resources, including shale oil and gas or gas trapped in sands with low permeability that require advanced drilling technologies to recover. The company's resource base is equivalent to 45 trillion cubic feet of gas.
The acquisition, which is subject to XTO shareholder approval and expected to close in the second quarter of next year, could prompt a new rush to owning more natural gas assets by major energy producers and perhaps signal the start of a major consolidation in the energy industry. The acquisition could prompt other major energy producers to move, analysts said.
"Exxon is the group leader and it sets the trend. I would expect more acquisitions in the next three to six months," said Fadel Gheit, a senior energy analyst at Oppenheimer & Co. "This will be more of these deals, and it will make the industry more resilient to volatility in natural gas prices."
Exxon Mobil CEO Rex Tillerson said the company values XTO both for its outstanding expertise in unconventional natural gas drilling and for its large U.S. natural gas and oil reserves.
XTO chairman and founder Bob Simpson said XTO, which has "a proven ability to profitably and consistently grow production and reserves in unconventional resources," will help Exxon develop natural gas and oil resources on a global basis.
U.S. natural gas prices have been under pressure as inventories of gas rose to record high levels, but Exxon is making a bet that demand for natural gas will rebound and continue to grow, especially in the United States. Tillerson said natural gas is the fastest-growing major energy source globally.
The company said the deal will not likely increase its earnings per share in the near-term and may be dilutive because of the market price for natural gas.
"We'll probably suffer in the near-term as we put it together," Tillerson told analysts on a conference call. "This is really about value creation over the next many years."
The U.S. Department of Energy is not as bullish as Exxon. It forecasts that natural gas demand will continue to decline in the short term and rise only modestly in the long term.
It sees demand for natural gas in the U.S. rising to 25 trillion cubic feet in 2035 from around 23 trillion cubic this year and natural gas prices rising to only 7 dollars per thousand feet by 2020.
Analysts called Exxon's acquisition of XTO a bet on future demand for natural gas as the U.S. looks for energy sources with lower greenhouse gas emission levels than coal and oil.
The deal reflects the "long-term energy view, which would be that natural gas would be the fastest-growing fuel over the next 30 to 40 years," said Deutsche Bank oil analyst Paul Sankey.
Analysts said it may take many years for Exxon's bet to pay off, but for a company that does not have to worry about making pay rollor margin calls, time is on its side. With the purchase, Exxon also has forced its peers in the industry into a game of catch-up, they said.
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