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ExxonMobil Acquires More Marcellus Acreage

ExxonMobil Corp., the nation's largest onshore natural gas producer, has acquired another 317,000 net acres in the Marcellus Shale, which nearly doubles its leasehold in the play.

The Irving, TX-based supermajor confirmed that it paid $1.69 billion earlier this month to acquire privately held Phillips Resources Inc. and TWP Inc., which are related companies based in Warrendale, PA. TWP also operates as T.W. Phillips Oil & Gas Co.

"We believe that the mergers will create significant value by leveraging regional synergies in upstream operations and acreage holdings between XTO Energy Inc. and the Phillips Cos.," said spokesman Alan Jeffers. "We think there are good opportunities" in the transactions.

The mergers give ExxonMobil an estimated 700,000 net acres in the Marcellus Shale, mostly in the prolific southwestern corner of Pennsylvania, Jeffers said.

The deal comes a little more than a month after rival Chevron Corp. announced its acquisition of another 228,000 net acres in the Marcellus, giving Chevron 714,000 net acres, just slightly more than ExxonMobil's new total (see Shale Daily, May 5).

The two producers, however, still trail several Marcellus operators, led by Chesapeake Energy Corp.'s 1.73 million net acres and Range Resources Corp.'s 1.05 million net acres.

ExxonMobil's newest assets currently produce about 50 MMcf/d net in the Marcellus and have proved reserves of about 228 Bcfe. In addition the producers also have prospective acreage in Michigan, Ohio and West Virginia.

The energy team at Tudor, Pickering, Holt & Co. Inc. (TPH) said in a note the ExxonMobil purchase "looks good" for the supermajor but didn't make the analysts more bullish near-term on natural gas.

"It does say there is an underlying bid for gas assets if the stock market won't pay," they wrote. The stock market "already [is] paying $5.50/Mcf long-term gas across our gassy coverage currently. At the same time, majors aren't crazy; their investment horizon is just longer than most equity investors and another supportive data point for higher long-term gas," which for TPH is $6.

ExxonMobil completed its acquisition of domestic shale giant XTO last year and made it a subsidiary that is based in Fort Worth, TX (see Daily GPI, June 28, 2010). XTO, which had a leasehold in every major shale play prior to the ExxonMobil takeover, began acquiring Marcellus acreage in 2008 (see Daily GPI, April 16, 2008; July 23, 2008).

Phillips and TWP would become part of XTO. Some ExxonMobil employees would move into the companies' Warrendale office space. Most of the merged companies' 200 employees would be retained.

The acquired companies at one time were part of T.W. Phillips, a Butler County, PA-based natural gas utility, which was acquired in May by California-based SteelRiver Infrastructure Fund North America LP.

Phillips, which has been operating in western Pennsylvania for 35 years, owns or operates more than 4,000 producing gas wells in the state. It has actively drilled in both shallow conventional formations, as well as in the Marcellus Shale. To date the independent, which is a member of the Marcellus Shale Coalition, has drilled more than 50 vertical and horizontal wells in the shale play.

At the end of 2010 ExxonMobil reported that it held 15.3 Bcf of proved reserves in the United States alone.

Business for ExxonMobil's North American natural gas trading arm has soared since the XTO merger. According to NGI's 1Q2011 Top North American Gas Marketers Ranking, the producer marketed 4.37 Bcf/d in the first quarter, which was 130% higher than in the year-ago period (see Daily GPI, June 9).

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