Dec. 12 (Bloomberg) -- ConocoPhillips, agreed to buy U.S. natural-gas producer Burlington Resources Inc. for $35.6 billion in cash and stock as Chairman James Mulva seeks to bolster reserves and rival the world's largest oil companies.

ConocoPhillips, the third-biggest U.S. oil and gas producer, will pay $46.50 in cash and 0.7214 shares for each Burlington share, the company said today in a statement. That's $92 a share based on the price of ConocoPhillips stock on Dec. 9, before reports of the merger. The takeover is the industry's biggest since Chevron Corp. agreed to buy Texaco Inc. in 2001.

Mulva, 59, is using acquisitions to catch up with Chevron, the No. 2 U.S. oil company, as oil and gas fields become harder to find and more expensive to tap. ConocoPhillips pumped more from reserves last year than it replaced through exploration.

``They want to get closer to Chevron,'' said Mark Zvonkovic, a partner who oversees energy mergers at the New York law firm Akin Gump. ``Acquiring Burlington would bring them closer to the super majors,'' he said in an interview, referring to companies such as Exxon Mobil Corp., the world's biggest publicly traded oil company, and BP Plc, the second largest.

Soaring energy prices are spurring acquisitions, according to Kurt Wulff, an analyst with McDep Associates in Needham, Massachusetts. U.S. natural gas climbed to a record last week and crude oil reached an all-time high in August. ConocoPhillips is buying Burlington ``out of optimism about the price of natural gas,'' said Wulff, who owns shares of both.

Buying Spree

U.S. energy companies have agreed this year to spend more than $197 billion on acquisitions. That's double what they spent in 2004 and the most since 1999, when $202 billion in mergers were announced.

Burlington, the biggest U.S. energy producers that doesn't have refining or chemicals, would boost ConocoPhillips U.S. gas reserves, excluding Alaska, by 88 percent to 7.979 trillion cubic feet, according to company filings. A merger would increase ConocoPhillips U.S. gas output by 77 percent, adding to holdings in the San Juan, Anadarko and Wind River basins from New Mexico to Wyoming.

A combined ConocoPhillips and Burlington, both of Houston, would be the second-largest U.S. gas producer behind London-based BP. ConocoPhillips is sixth today, and Burlington Resources is 12th.

Reserve Replacement

ConocoPhillips has used acquisitions to add to reserves as its drilling fails to keep pace with declining output from existing fields. Burlington has relied more on exploration. Half the crude oil the ConocoPhillips produces is from older fields in Alaska and Norway that yield less each year.

Burlington's reserve replacement ratio excluding acquisitions, a measure of drilling success, rose to 119 percent last year, according to company filings. ConocoPhillips's exploration replaced only 65 percent of what the company pumped. It doubled reserves mostly through acquisitions.

ConocoPhillips last year bought 7.6 percent of Lukoil, Russia's largest oil producer, for $2 billion. Mulva has raised the stake to 14.8 percent and plans to acquire 20 percent.

``Conoco doesn't have the reserves of the other integrated oil and gas companies,'' said David Dreman, who oversees $15 billion at Dreman Value Management in Jersey City, New Jersey. ``That's why they're doing the Russian Lukoil venture,'' said Dreman, whose firm own 11.4 million ConocoPhillips shares.

``The valuation looks pricey,'' said Gene Pisasale, an analyst at Mercantile Bankshares Corp. in Baltimore. A price of $30 billion is the equivalent of paying about $15 a barrel for Burlington's oil and gas reserves, he said. ConocoPhillips' exploration and production costs about $10 a barrel.

Sellers' Market

``They are trying to capture proved, developed reserves that are ready to come on stream in the near future,'' Pisasale said in an interview. ``That means that they believe oil and gas prices are going to remain relatively high.''

Mulva himself told a meeting of analysts on Nov. 16 that acquisition prices are rising. ``It really becomes more and more of a sellers' market, and terms and conditions are not that attractive to buyers.''

Shares of Burlington Resources, which has its roots in railroad land grants by President Abraham Lincoln in the 1860s, rose $6.41, or 8.4 percent, to $82.50 today in New York Stock Exchange composite trading. The takeover was announced by the company after the close of trading.

Burlington shares have gained 90 percent this year, the sixth best performance in the Standard & Poor's 500 Index. Two more gas producers, EOG Resources Inc. and XTO Energy Inc., are among the top ten this year in the S&P 500, as are a refiner and two oilfield services companies.

Calgary's EnCana Corp. agreed to purchase Tom Brown Inc. in April 2004 for $2.35 billion in cash, and Oklahoma City-based Kerr-McGee Corp. agreed to buy Westport Resources Corp. for about $2.5 billion in stock around the same time.

Tom Brown and Westport, like Burlington Resources, do much of their exploration in the Rocky Mountain region. These companies are taking advantage of high gas prices that make so- called unconventional gas reservoirs economical. Such reservoirs require more drilling than typical gas fields and extra expense to keep the gas flowing.

This year's biggest oil industry merger before today's announcement was Chevron's acquisition in August of Unocal Corp. for $17.8 billion in cash and stock, a purchase that boosted Chevron's gas reserves in Southeast Asia.

To contact the reporters on this story: Sonja Franklin in Calgary at at sfranklin6@bloomberg.net; Dan Lonkevich in New York at dlonkevich@bloomberg.net.

Last Updated: December 12, 2005 22:28 EST