The planned buyout of an independent natural gas producer by a major energy company underscores the belief that natural gas is the fuel of the future. The deal widens the scope of exchange traded funds (ETFs) that could benefit.
Exxon Mobil Corp. (NYSE: XOM) is planning on acquiring natural gas explorer and producer XTO Energy Inc. (NYSE: XTO), which is valued at $41 billion, reports Jason Womack for The Wall Street Journal. The renewed interest in natural gas may provide the necessary stimulus for more mergers and acquisitions to come.
The news provided a boost to natural gas prices and some analysts think natural gas prices may rise $1 above their current levels in 2010 on the increase in M&A activity. Natural gas prices for January delivery still hover around $5.25 per million British thermal units. (Will cold snap heat up natural gas ETFs?)
Exxon’s planned purchase of XTO Energy has observers wondering if the natural gas prices are set to break the $6 barrier, remarks Matt Phillips for The Wall Street Journal. Exxon Chief Executive Rex Tillerson tried to dispel the notion that the company is betting on natural gas prices, stating that the buyout is not a price play but more of an efficiency play.
XTO’s specialty is extracting gas from sources like shales, coal-bed methane and “tight” formations. Exxon has already expressed an interest in these gas sources and the acquisition would help Exxon to develop those interests. Shale fields boast large quantities of hydrocarbons, long lifespans and repeatable results, which help lower company costs in the long run.