Saturday, January 2, 2010

Exxon's Acquisition

"Shrinking? Me? Having spent much of this decade buying back the shares it issued in its last big acquisition, Exxon Mobil Corp. is purchasing another company for a change. ... What's more, Exxon is scaling up in a business that looks dreadful right now: US natural gas. ... Exxon has recycled $258.8 billion into buying back its own stock since September 2000, according to [S&Ps], equivalent to almost 79% of its current market capitalization. ... Moreover, it is paying less than $1 per thousand cubic feet equivalent whcn XTO's probable and possible reserves are taken into account. ... With XTO, an entrepreneurial, acquisitive company, the risk is largely cultural. In trying to capture the expertise of XTO's employees, Exxon must be careful not to smother them in its much larger organization", my emphasis, Liam Denning at the WSJ, 15 December 2009, link:

There is much speculation about why EOM is buying XTO. My answer: XOM thinks the price of natural gas will increase over the next 5-10 years.

1 comment:

Anonymous said...

Energy economics... the most interesting kind...