Royal Dutch Shell Group .com

Daily Telegraph: Conoco in $30bn merger talks: “Energy companies are turning to deals because exploration possibilities are becoming increasingly limited.”: “Shell has been reported to be running the slide rule over EnCana, the largest producer of natural gas in the US and Canada.”: Tuesday 13 December 2005

 

By David Litterick in New York (Filed: 13/12/2005)

 

ConocoPhillips, the third largest US oil company, is understood to be ready to make a huge gamble on the natural gas market as it considers making a $30billion (£17billion) offer for Burlington Resources.

 

The two companies are believed to be talking about a combination that would create the second biggest natural gas concern in North America after BP.

 

A deal would be just the latest in a long line of merger and acquisition activity this year, which has made 2005 the busiest year for M&A since 1999.

 

Energy companies are turning to deals because exploration possibilities are becoming increasingly limited.

 

Chevron bought Unocal for $17.8billion in August to boost natural gas holdings in Asia, while Conoco last year bought a stake in Russia's Lukoil to increase its presence in Russia, the world's second-biggest oil exporter behind Saudi Arabia.

 

A $30billion acquisition would be the biggest oil-industry merger since Chevron agreed to buy Texaco for $45.8billion in 2001.

 

"This is probably a very good move for ConocoPhillips because Burlington is one of the best-positioned domestic natural-gas producers," said Stephen Leeb, fund manager at Leeb Capital Management. "Conoco has basically realised they're not going to grow reserves on their own."

 

Purchasing Burlington would boost Conoco's US gas reserves by 88pc to nearly eight trillion cubic feet. The potential deal comes as the price of natural gas, the most widely used US heating fuel, more than doubled this year as rising demand stretched supplies. Output is declining at older wells and a series of hurricanes slashed production in the Gulf of Mexico.

 

Other large oil companies are also understood to be looking for natural gas producers. Shell has been reported to be running the slide rule over EnCana, the largest producer of natural gas in the US and Canada.

 

ConocoPhillips already operates in some of the same US regions as Burlington, such as the Permian Basin in Texas and New Mexico's San Juan basin. Such overlaps would help ConocoPhillips rein in soaring costs for drilling rigs, manpower and pipes.

 

Burlington traces its roots to railroad land grants in 1864 from President Abraham Lincoln. The company's shares jumped 75pc this year as rising gas demand and supply disruptions in the Gulf of Mexico boosted prices. The company had profits of $1.8billion during the first nine months of 2005, up 56pc from a year earlier.

 

Click here to return to ShellNews.net HOME PAGE


Click here to return to Royal Dutch Shell Group .com