Exxon-XTO Energy Merger Completed

The U.S. oil giant ExxonMobil Corp. (XOM - Analyst Report) completed the proposed merger with the unconventional player XTO Energy Inc. (XTO) last Friday. The deal creates a new organization that will focus on global development and production of unconventional resources. The new organization will retain its identity as XTO Energy Inc. and will keep its head office in Fort Worth, Texas.

The $41 billion (including debt) merger will augment Exxon’s position in the development of unconventional resources, which will create sustainable and long-term value for its shareholders. Moreover, the merger undoubtedly brings good news for Americans as it is a step forward in the production of more clean natural gas.

Under the terms of the merger agreement announced last December, Exxon had decided to issue 0.7098 common shares for each common share of XTO Energy.

After this deal, Exxon will have access to significant unconventional resources and get a major grip over North America's newest energy discoveries, as it looks forward to the growth of natural gas in expanding its share of the world's largest energy market.

XTO Energy’s current unconventional resource base consists of 45 trillion cubic feet of gas, which will be an ideal foil for Exxon’s holdings in the United States, Canada, Germany, Poland, Argentina and Indonesia.

Given Exxon’s $5 billion cash in hand (at the end of first quarter) and XTO Energy’s solid cash generating capability, we anticipate buybacks to accelerate. While Exxon’s shares have been experiencing a downside in the last two months (down more than 12%), we believe that the completed deal will lift them in the near to medium term. Our Neutral recommendation on Exxon shares remains unchanged at this stage.