Exxon to Buy Celtic Exploration for $2.92 Billion

Exxon Mobil Corp., the world’s largest energy company by market value, agreed to buy Celtic Exploration Ltd. for C$2.86 billion ($2.92 billion) in cash and stock, adding oil and gas production in Canada’s Montney and Duvernay shale.

Celtic’s holders will receive C$24.50 ($24.89) a share and half a share of a new company that will hold assets not included in the agreement, Calgary-based Celtic said today in a statement. The cash value per-share represents a 35 percent premium to Celtic’s closing price yesterday.

The purchase is the largest by Exxon Mobil since its $35 billion takeover of XTO Energy in June 2010. It includes 545,000 net acres in the Montney shale and 104,000 acres in the Duvernay, fields where oil and natural gas are extracted by horizontal drilling and hydraulic fracturing, so-called unconventional operations that were XTO’s specialty.

“This acquisition will add significant liquids-rich resources to our existing North American unconventional portfolio,” Andrew Barry, president of Exxon Mobil Canada, said in a separate statement. “Our financial and technical strength will enable us to maximize resource value by leveraging the experience of Exxon Mobil subsidiary XTO Energy.”

Current production on the acreage is 72 million cubic feet of gas a day and 4,000 barrels a day of oil and natural gas liquids.

Acreage Value

Exxon rose 1.1 percent to $93.39 at the close in New York. Celtic rose 45 percent to C$26.29 in Toronto, the biggest gain in more than 10 years.

Exxon is paying about C$3,600 an acre for Celtic’s holdings, compared with C$2,800 an acre in Petroliam Nasional Bhd’s pending C$5.16 billion purchase of Progress Energy Resources Corp., Brook Papau, a Calgary-based energy-markets analyst for ITG Investment Research in Calgary, said today in a telephone interview.

Celtic’s Duvernay production may be as much as half oil and other petroleum liquids by volume, prized because those sell at premiums to gas, Papau said. The area has been actively drilled, reducing the risk that the petroleum in place is lower than estimated, he said.

Exxon may also eventually export liquefied natural gas to Asia from the Montney shale, where production is about 80 percent gas, Papau said.

LNG Exports

The company is looking at potential LNG export projects in western Canada and the U.S., Thomas Walters, president of Exxon Mobil Gas & Power Marketing Co., said Sept. 19 in an interview at an LNG conference in Tokyo.

Exxon also may attempt to join export projects led by Apache Corp. and Royal Dutch Shell Plc that are planned in Kitimat, British Columbia, Papau said.

“The major oil companies are recognizing that Canada represents an enormous opportunity to build out their portfolios in unconventional” resources such as shale, Gianna Bern, founder of Brookshire Advisory and Research Inc., a Chicago-based risk-management adviser to energy producers, said in an interview today.

Western Canadian shale acreage is held in large blocks by small companies, making it attractive for major oil companies that can create value by accelerating drilling and locking in major supply lines to market, Papau said.

Unconventional Expertise

Exxon Chairman and Chief Executive Officer Rex Tillerson spent almost $40 billion during the past 28 months acquiring shale fields and the expertise to harvest them, including last month’s $2 billion agreement to buy drilling rights in North Dakota and Montana from Denbury Resources Inc.

In the past four weeks, Exxon has agreed to purchase drilling rights in shale and other unconventional formations spanning 845,000 acres, an area more than four times the size of New York City.

Worldwide oil prices surged 20 percent since the end of 2010, enabling Exxon to expand its cash reserve by almost $10 billion to $17.8 billion at the end of the second quarter, according to data compiled by Bloomberg.

Exxon Mobil Canada will assume C$240 million of debt in the transaction, Sadiq H. Lalani, chief financial officer of Celtic, said today in a telephone interview.

New Company

In addition to cash for each share owned, each Celtic shareholder will get half a share of the new company led by Lalani and David J. Wilson, Celtic’s CEO. The company will have daily production equivalent to 3,300 barrels of oil a day and will have assets in Alberta and British Columbia.

The new company will own property for which Exxon and Celtic couldn’t agree on a value, Lalani said in an interview. “So it made more sense for us to keep that,” he said.

Net asset value of the new company is C$2.32 a share, Celtic said in its statement.

Celtic used no financial advisers, Lalani said. FirstEnergy Capital Corp. and RBC Capital Markets provided fairness opinions, according to the statement.

The deal has been unanimously approved by Celtic’s board and is subject to a C$90 million termination fee, paid by Celtic, if it isn’t completed under certain conditions.

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