Conoco To Acquire Gas Producer In Huge Deal

Not mentioned in this report was that this acquisition is based on Conoco betting on a long term high price for natural gas.

By Justin Blum
Washington Post Staff Writer
Tuesday, December 13, 2005; Page D01

ConocoPhillips, the third-largest U.S. oil company, announced last night that it has agreed to buy Burlington Resources Inc. in a $35.6 billion deal designed to increase the company's natural gas reserves and production.

The transaction must be approved by Burlington shareholders and government regulators. It would significantly expand Conoco, bringing the company closer in size to the country's second-largest oil company, Chevron Corp.

Burlington, one of the country's biggest independent exploration and production companies, is primarily a producer of natural gas but also has oil reserves. The bulk of Burlington's reserves are in the United States and Canada.

The company appeals to Conoco, analysts said, because it provides a quick way for the company to boost its natural gas reserves at a time of high prices and limited opportunities for growth, analysts said. Natural gas is used to heat a majority of homes in the United States, and its production has not kept pace with demand.

The deal would be the industry's biggest since the 2001 acquisition of Texaco Inc. by Chevron.

In a statement last night, Conoco chief executive James J. Mulva said the acquisition would expand the company's production in the short and long terms. "ConocoPhillips will expand our portfolio of high quality, low-risk, long-lived gas reserves, and become a leading producer of natural gas in North America," Mulva said.

Mulva said Burlington's assets would fit well into Conoco's integrated oil operations. He described Burlington as "an efficient, well-run exploration and production organization."

The companies, both based in Houston, said Burlington had proven reserves of about 2 billion barrels of oil equivalent as of December 2004. The combined company would have proven reserves totaling about 10.5 billion barrels of oil equivalent.

The deal calls for Conoco to pay $46.50 in cash and 0.7214 in stock for each share of Burlington, the statement said. That works out to $92 a share based on the closing price of Conoco on Friday, prior to reports of the possible acquisition.

Conoco said it would use a combination of cash on hand and debt to pay for the deal.

Lawrence J. Goldstein, president of the New York-based Petroleum Industry Research Foundation Inc., said the deal makes sense for Conoco because it allows the company to quickly expand and cash in on high natural gas prices.

"Large companies have to find large reserves," Goldstein said. "You can do that on your own, or you can do that buy buying other companies' reserves. My sense is you're going to have to do both."