Exxon Deal May Be Green Light for Shale

"Others may have to follow its $30 billion purchase of XTO, a company that specializes in fracturing rock with water and sand to make natural gas flow"

By Jessica Resnick-Ault

"(Bloomberg) — Exxon Mobil's (XOM) $30 billion purchase of XTO Energy (XTO), the largest U.S. petroleum takeover since 2006, may signal a wave of acquisitions as major producers seek to tap growing gas and oil output from shale formations.

Irving, Texas-based Exxon announced its deal yesterday, saying it plans to make XTO, the largest natural-gas producer in the U.S., the centerpiece of its global expansion in shale developments. XTO is among companies that drove a surge in U.S. fuel output by exploiting so-called shale plays, where rock formations are fractured with water and sand to make gas flow.

Exxon's stamp of approval on shale plays may be a watershed, encouraging companies that have already made investments in the segment to expand their positions, said Ryan Cournoyer, head of energy trading at Lighthouse Financial Group LLC in New York. The largest U.S. energy company also will help stabilize gas prices, making it easier for buyers and sellers to come together on acquisition values, he said.

"Exxon Mobil acquiring XTO is going to put a floor on natural-gas prices longer term," Cournoyer said. "These guys are finally coming out and acknowledging that they need to grow their reserves longer term."

Likely buyers include major oil companies that are struggling to boost output, such as Royal Dutch Shell Plc and Total (TOT), said Ted Harper of Frost Investment Advisors in Houston and Philip Weiss, an analyst at Argus Research Corp. in New York. They said takeover targets may include independent producers like Anadarko Petroleum Corp., EOG Resources (EOG), EnCana Corp., Ultra Petroleum (UPL), and Range Resources (RRC)." More>>>>