(Exxon-XTO article deal updated for afternoon stock prices.)
IRVING, Texas (
) -- Oil and gas operators were up close to 5% on Monday afternoon on the news that
The all-stock deal -- valued at $41 billion between the bellwether stock in the energy sector and unconventional natural gas producer, XTO -- immediately boosted the sector. "If Exxon is saying that natural gas in the U.S. can work, that certainly is going to give investors comfort," said Nick Pope, analyst at Dahlman Rose.
In a research note, Deutsche Bank Securities reiterated a buy rating on Exxon, arguing that its concerns about the "next leg of returns accretion and growth" were answered by the planned XTO acquisition.
Exxon-XTO Deal Fuels Buyers
Deutsche Bank said that it did not expect hiccups on the way to the deal's consummation, either. The premium that Exxon is willing to pay for XTO, of approximately 25%, and the receptiveness of XTO to the deal, also makes it difficult to imagine a counter-bid. And even though XTO is huge in the natural-gas market, there are so many natural-gas players that the deal is unlikely to encounter anti-trust problems, Deutsche Bank wrote.
What's more, some of the other big players in the energy space, including
, already have spending levels too high to take on a deal of this size.
While the bet on the U.S. natural gas sector is striking, the most compelling aspect of the deal, according to Dahlman Rose's Pope, is the technological lead that U.S. unconventional natural gas players like XTO have taken relative to the global energy landscape. The deal hints at a need among hungry big energy producers, both in the U.S. and internationally, that investors should expect to see play out in various industry chess moves along similar lines to the Exxon-XTO deal.
"XTO has lots of potential to drill, but I think probably even more important is the technology that they have developed. Unconventional resources like shale gas are something that we haven't seen worldwide. It's really been a U.S. phenomenon and the success of these U.S. companies is something that Exxon wants to help guide in other assets worldwide," Pope explained.
ExxonMobil intends to establish a new upstream organization to manage global development and production of unconventional resources, enabling the rapid development and deployment of technologies and operating practices to increase production and maximize resource value. The new organization will be located in Fort Worth, Texas, in XTO's current offices.
Bob Simpson, chairman and founder of XTO, said that over the company's23-year history, XTO has developed technical expertise and has assembled asubstantial, high-quality and diverse resource base in producing basins acrossthe United States.
"XTO has a proven ability to profitably and consistently grow production andreserves in unconventional resources," said Simpson. "As the world's leadingenergy company, ExxonMobil will build on our success and open new opportunitiesfor the development of natural gas and oil resources on a global basis."
To that point, XTO competitors were benefiting on Monday from the Exxon play and the potential for more M&A reverberations. While XTO itself was up more than 15% on the premium price offer from Exxon, other U.S. oil and gas exploration firms were experiencing significant gains.
was up more than 11%;
was up more than 5%;
was up more than 6%; and
was up more than 5% too.
was up close to 5%.
was up more than 4% on Monday afternoon.
The boost to oil and gas stocks was widespread.
Carrizo Oil & Gas
was up 8%, as was
Cabot Oil & Gas
was up close to 8%.
was up 8.5% on Monday afternoon.
The number of potential energy-sector targets spreads as far and wide as an Exxon-Valdez-style oil spill, but the biggest among all of these independents are likely to receive the most M&A scrutiny.
"The U.S. companies have clearly been the leaders in tight gas and shale rock drilling, far and away," said Dahlman's Pope. "It's already been game-changing in the U.S. and has the potential to be worldwide, and that's what the major energy producers want and need" he added.
-- Reported by Eric Rosenbaum in New York.
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