Tuesday, December 13, 2005

ConocoPhillips acquires major natural gas producer ConocoPhillips, the #3 US energy company announced it will buy US-based energy producer Burlington Resources in an eye-opening $35 billion deal. It's the largest petroleum industry deal in years. The move allows ConocoPhillips to challenge Chevron (formerly ChevronTexaco) for the #2 spot among US oil companies. Both companies are far behind MobilExxon. ConocoPhillips is the result of the 2002 purchase of Conoco by Phillips Petroleum. Phillips had already acquired the Alaskan oil assets of Atlantic Richfield and had bought out independent refiner Tosco. Burlington Resources has extensive holdings in natural gas in North America, along with some foreign gas fields and some oil wells in addition. The buy is significantly higher in price than recent deals such as Chevron's purchase of Unocal, Occidental's acquisition of Vintage,  and Chesapeake's Energy's recent purchase of gas assets in Texas and Alaska. Natural gas prices have gone up faster than oil prices, and ConocoPhillips is betting that that trend will continue. Other small to mid-size North American gas companies seen as acquisition targets by the energy giants are: EOG Resources Inc., Southwestern Energy Co., XTO Energy Inc., and Ultra Petroleum Corp. According to a Wall Street Journal article ("Conoco Purchase May Start Spree Of Energy Deals", 12/13/05): Driving this expected clutch of M&A deals is the tight market for gas in North America. Natural gas is used to heat a majority of U.S. homes, generating about one-fifth of U.S. electricity. U.S. domestic production has stalled, even as the growing economy increased demand. Note that this is yet another case where the profits of the energy industry are being used not to discover new oil and gas fields, but to shuffle around existing assets. That's after a massive set of tax breaks for these companies in the 2005 Energy Bill aimed at encouraging new explanation. Surely some of that break is going into buying Burlington. 8:41:25 PM

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