The Rising Influence of Rising Affluence

[DewDiligence]

Exxon Acquires Private Marcellus Companies for $1.7B

[More evidence that XOM’s buyout of XTO was not a one-off foray into shale gas.]

http://online.wsj.com/article/SB10001424052702304392704576374103408464670.html

›JUNE 8, 2011, 7:09 P.M. ET
By RUSSEL GOLD

Exxon Mobil Corp., the largest U.S. natural-gas producer, got a little larger last week.

The Texas-based company said Wednesday it has purchased two gas producers active in the Marcellus Shale in the northeast U.S. for $1.69 billion.

The deal closed on June 2. Exxon said it will wrap the production and employees into its XTO Energy subsidiary. The companies it acquired are privately held Phillips Resources, Inc. and TWP Inc., according to Exxon spokesman Alan Jeffers.

Exxon took a big plunge into domestic gas production when it purchased XTO Energy in 2010 for $25 billion. Since then, it has been regularly acquiring additional gas production and leases with gas-bearing shale rock underneath. It purchased Ellora Energy Inc. for $695 million, picking up interest in Louisiana's Haynesville Shale. In December, it acquired natural-gas assets in Arkansas from Petrohawk Energy Corp. for $575 million.

Exxon produced 3.9 billion cubic feet of natural gas daily in the first quarter of 2011. The two acquired companies produced 15 million cubic feet, according to Exxon. [Clearly, existing production is not the reason for the acquisitions—see below.]

The bigger draw for Exxon is likely the estimated reserves of untapped natural gas and the 317,000 leased acres held by the two companies. The companies' leases hold an estimated 228 billion cubic feet of gas, mostly in Pennsylvania, but also in West Virginia, Ohio and Michigan as well. Exxon reported at the end of 2010 it held 15.3 billion cubic feet of gas in the U.S. in proved reserves, a financial term that indicates a very high likelihood this gas can be recovered.

Over the years, Phillips has drilled more than 4,000 wells in Pennsylvania, mostly targeting shallow deposits. It has only recently begun drilling deeper into the Marcellus Shale and has completed only 50 of these wells.

Drilling and producing gas from the Marcellus Shale will require hydraulic fracturing, a process of injecting liquid under high pressure to crack open the rocks to let the gas flow out. This technique has become very controversial with activists claiming the process can contaminate drinking water and cause other environmental damage.

Exxon maintains it can produce gas from shale rocks in an environmentally acceptable manner.‹