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In Natural Gas Market, Advantage Goes to 'Fire Sale' Buyer

NEW YORK ( TheStreet) -- Spot market pricing weakness has placed exploration and production companies focused on natural gas in a tough spot. In a sale of gas assets made by Carrizo Oil and Gas (CRZO - Get Report) on Friday, it looks like the market is favoring the buyer.

Shares of the company that purchased the dry gas assets from Carrizo, Atlas Resources Partners (ARP - Get Report), rose by 32%, while Carrizo shares saw a bump of just 1%.

It's no surprise that natural gas-weighted E&Ps have suffered as pricing has weakened. The situation is so severe that the companies have already put a stop to natural gas production to combat excessive supply, from independent producers to oil and gas majors like ConocoPhillips (COP).

As natural gas companies look to sell uneconomic assets, the advantage goes to the buyer.

The production cuts haven't done anything to help natural gas prices rebound, though: Spot market prices hit a decade-low level this week, shortly before Carrizo completed its sale of dry gas assets in the Barnett gas basin to Atlas for $190 million.

Since the end of 2010, the rig count in the Barnett basin is down 27%, according to Stephens, as drillers migrate away from the uneconomic gas plays.

The natural gas pricing conundrum has raised the issue of whether a fire sale is coming in the market, with independent E&Ps forced to sell out to majors like ExxonMobil (XOM - Get Report); in other words, the big balance sheet, low cost of capital players that can buy at depressed prices and wait for a better day in the natural gas market.

There are two conspiracy theories about ExxonMobil and the natural gas issue as these divestitures begin.

ExxonMobil said earlier this year that it had no plans to stop natural gas production that it gained through its acquisition of XTO Energy, in contrast to most peers cutting back, and leading to the theory that it would be in Exxon's best interest to see the independents fail, allowing the company to buy up these dry gas assets at a discount.

Add to this the fact that ExxonMobil has received a steady stream of criticism for the XTO Energy price tag -- valued at roughly $8.50 to $9 for natural gas that is now trading around the $2.25 mark -- and buying up lots of depressed natural gas assets would ultimately allow Exxon to bring down the blended cost of its natural gas production, making that $8.50 to $9 no longer look quite so expensive.

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