Exxon Mobile (XOM) Expands into Canada by Purchasing Celtic Exploration for $2.91 Billion
This week, energy giant Exxon Mobil (XOM: Charts, News) announced the acquisition of Celtic Exploration for $2.91 billion. The acquisition of Calgary-based Celtic, which will be paid for in cash and stock, will give Celtic shareholders C$24.50 ($24.89) per share as well as half a share of a new holding company which includes assets not included in the agreement.
This new holding company owns properties in Alberta and British Columbia, with production capabilities of 3,300 barrels of oil per day. Daily Chart
The total value of the deal represents a 35% acquisition premium over Celtic's closing price on Tuesday, and is Exxon's largest acquisition since its $35 billion purchase of XTO Energy in June 2010. The purchase of Celtic expands Exxon's reach into Canada's Montney and Duvernay shale fields, which measure 545,000 acres and 104,000 acres respectively. Hydraulic fracturing, one of the specialties of Exxon subsidiary XTO, is a controversial method of extraction that is used extensively in the Montney and Duvernay shale fields. The two fields currently produce 72 million cubic feet of gas per day, along with 4,000 barrels of oil daily along with other natural gas liquids. The Duvernay field produces more oil and other petroleum products, while the Montney field produces approximately 80% natural gas. Exxon plans to eventually export liquefied natural gas from Montney to Asia. Exxon Mobil Canada President Andrew Barry was upbeat regarding the deal, stating, "This acquisition will add significant liquids-rich resources to our existing North American unconventional portfolio." The purchase of Celtic is only the most recent development in Exxon's buying spree of shale fields over the past 28 months. During this period, Exxon CEO Rex Tillerson has spent nearly $40 billion purchasing these properties. Last month, Exxon purchased drilling rights in North Dakota and Montana from Denbury Resources (DNR
) for $2 billion. Over the past month, Exxon has acquired 845,000 acres of new fields - an area more than quadruple the size of New York City. Exxon has also expressed interest in acquiring LNG export projects along the western seaboard of Canada and the United States. The remaining shale fields in western Canada are primarily held by small companies, which profit through auctioning them off to the highest bidder. These companies are reaping the benefits as worldwide energy companies begin consolidating and swallowing smaller competitors in oil and natural gas. In addition to its North American efforts, Exxon has aggressively expanded into the Arctic Sea, in a joint venture with Russia-based Rosneft. Rosneft is a state controlled energy company, which has recently inked deals with not only Exxon but also Italy's Eni and Norway's Staoil for jointly funded exploration and development deals in its backyard. Exxon has profited from a 20% surge in global oil prices since 2010, which boosted its cash reserve by nearly $10 billion to $17.8 billion at the end of the previous quarter. Shares of Exxon rallied 1.1% on the news, while shares of Celtic soared 45%. Exxon will inherit approximately $240 million in the debt from Celtic. Shares of Exxon Mobil trade at 11.4 times forward earnings with a 5-year PEG ratio of 1.5. The stock pays a quarterly dividend of 57 cents per share - a 2.44% yield at current prices. Exxon Mobil is the largest energy company in the world by market capitalizatio. Other News About XOM Exxon to Buy Alberta's Celtic for $2.91 Billion
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Published on Oct 18, 2012
By Leo Sun