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Weekly Update: ExxonMobil ups the stake in its US natural gas bet

ExxonMobil committed further this week to its belief that US gas prices will improve in the long run by acquiring two companies with operations in the Marcellus Shale play for $1.69 billion. For what most companies would be an important company maker or breaker, the $1.7 billion outlay only warranted a mention in a phone interview for ExxonMobil, who stated that the deal closed last week. The transaction works out at $5,300 per acre, which appears to be a good price considering the assets are already partially developed and just last year Reliance Industries, Mitsui and Williams were all prepared to pay over $10,000 per acre in separate deals in the play.

ExxonMobil’s recent acquisition strategy first raised eyebrows when they acquired gas weighted XTO Energy for $41 billion, representing a healthy premium at a time when gas prices had recently dropped as low as sub $3 per MCF. Since then, they have further expanded their shale gas portfolio with the $570 million acquisition of Ellora Energy in the Haynesville Shale and the$575 million acquisition of Petrohawk’s Fayetteville assets. Their strong cash position gives ExxonMobil the benefit of time in their plan of hoping industry will where possible use gas as a cheaper and cleaner substitute to oil. They will also benefit from the likely development of a US LNG export industry that is currently only represented by two proposed export terminals in Texas and Louisiana.

Elsewhere, it was a quiet week for upstream oil and gas M&A, with the next largest deal coming from Linc Energy who made a$236 million acquisition of properties in Texas and Louisiana from ERG Resources. The mature assets give Linc Energy a chance to further develop their enhanced oil recovery techniques which they expect will double the current 3,300 boe/d of production within 12 months.

In Nigeria, Petrofac increased their stake in Seven Energy International from 12.6% to 24.5% for $75 million. Seven Energy has a large portfolio of assets in Nigeria and expects 2011 to be a transformational year with first production from their Uquo and Stubb Creek fields and preparation for an IPO planned for early 2012. Although the potential of Nigeria as a major oil and gas producer has been proven, Petrofac will be hoping that the increased confidence in the region following the presidential election will translate into a safe operating environment.

Meanwhile, in the midstream segment there were three large deals involving European pipeline assets. Two of the deals targeted the same asset with Total and Statoil divesting their stakes in Gassled to various non-energy companies for $4 billion. Gassled are the owners of extensive transportation and processing facilities on the Norwegian continental shelf. The moves by Statoil and Total follow ExxonMobil’s exit from the venture last year. ENI also made a major divestment with the $960 million sale of an 89% interest in Trans Gasleitung, owner of transport rights for the Austrian section of the pipeline that connects Russia to Italy.

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