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ExxonMobil Makes Long-Term Bet on Natural Gas

FORT WORTH - ExxonMobil moved Monday to replenish its dwindling domestic energy resources and dive into the fast-growing and environmentally palatable market for natural gas by acquiring the USA's largest gas producer.

The energy industry giant said that it would buy XTO Energy by issuing about $31 billion worth of stock to XTO shareholders. It also agreed to assume about $10 billion of XTO's debt.

For that, ExxonMobil would get XTO's huge cache of rights to drill mostly for natural gas in the USA's most productive oil shale fields.

XTO has expertise in drilling through shale formations that previously were thought too difficult and costly. It's also the industry's leader in increasing the output of existing wells it acquires from other exploration companies.

XTO's Fort Worth offices would become the headquarters of an ExxonMobil division aimed at taking that expertise overseas. ExxonMobil is based in Irving, Texas.

Analysts say the deal, which requires XTO shareholders' approval and is expected to close in the second quarter of 2010, is significant because of ExxonMobil's diminishing domestic energy resources. Political conditions also make it harder and more expensive for U.S. oil companies such as ExxonMobil to acquire resources in other parts of the globe, they say.

"They recognize that the world is not going back to where it was five years ago," says Fadel Gheit, energy analyst at Oppenheimer Equity. "Access to resources is getting more difficult all over the world."

Michael Roberts at Prenova, an Atlanta-based consulting firm that advises corporations on energy procurement and management matters, says ExxonMobil views XTO as a "good alternative-fuel play" in response to efforts to reduce carbon emissions.

Though a carbon dioxide emitter, natural gas is the cleanest-burning fossil fuel and is increasingly favored by governments trying to reduce CO2 emissions.

Analysts say ExxonMobil's acquisition is likely to trigger similar moves by other energy giants to acquire large independent producers with involvement in the fast-growing unconventional natural-gas segment.

Credit Suisse analyst Jonathan Wolff said in a report Monday that Devon Energy of Oklahoma City is the most likely acquisition target now that XTO is off the market.

Other likely targets: Chesapeake Energy, EOG Resources, Range Resources, EnCana, Anadarko and Southwestern Energy.

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