Exxon Purchases XTO Energy and Plunges into Natural Gas

The last time Exxon made a major deal was when it merged with Mobil in 1999. Exxon says it will acquire XTO Energy Inc. of Fort Worth, TX for $31 billion in stock and inherit its $10 billion debt. XTO is one of the largest energy producers for tapping unconventional resources trapped in sands with a resource base of 45 trillion cubic feet of gas including shale gas, tight gas, coal bed methane and shale oil. This gives Exxon the big push it needs to enter the natural gas market.

XTO extracts natural gas from Barnett Shale in Texas and has recently started working in Bakken Shale in North Dakota. It also has a presence on Marcellus Shale in Pennsylvania, New York and West Virginia.

Exxon admits it may see a dilution of its earning in the short-term. However, Exxon's Chief Executive Rex Tillerson says it's looking at the value of a long-term resource. The purchase boosts the company's resources about 10 percent. Tillerson reports that the company expects to see the demand for natural gas to grow more than coal and oil in the near-future. But the Department of Energy believes natural gas demand will fall and then see only modest rise in the long-term.

Exxon believes that coal power plants will become too expensive to run if the government puts a cap on carbon dioxide emissions by passing a law. Although natural gas isn't as clean as wind and solar power, it's viewed as the best way to produce massive amounts of power on an economical scale.

The deal still requires XTO stockholder approval and regulatory clearance. Early trading shows Exxon shares fell by 3.7% while XTO's went up by 15.7%.