Encana shares rise on Exxon takeover speculation, Analysts split on whether ExxonMobil wallet is still open

Encana shares rise on Exxon takeover speculation, Analysts split on whether ExxonMobil wallet is still open by Dan Healing, October 18, 2012, Calgary Herald
CALGARY — Speculation that ExxonMobil Corp. might still be in a buying mood after offering $3.1 billion for Celtic Exploration Ltd. on Wednesday drove shares in Calgary oil and gas companies higher Thursday. Leading the charge was Encana Corp., Canada’s largest natural gas producer and holder of one of the largest land bases prospective for the kind of liquids-rich shale gas produced by Celtic. The company climbed 3.8 per cent or 86 cents to close at $23.64, its highest in a year, after a Connecticut independent financial analyst said it would be a natural next takeover target for Exxon. “There’s some sort of larger strategy at work here because Celtic’s assets are right in the heart of Encana’s Canadian natural gas assets,” Kevin Kaiser of Hedgeye Risk Management, told Bloomberg. “Possibly what Exxon is doing is looking to consolidate some acreage or take a look at the shale plays cheaply through acquiring Celtic in a first move before they could take out Encana.”

Analyst Lanny Pendill, however, a St. Louis-based researcher for Edward Jones who covers Canadian companies including Encana, told the Herald he doesn’t see that takeover happening even though Exxon has the financial strength to do it. “I think the chance of an offer for Encana, by Exxon, at least, is very slim and I think even if they did make an offer — and that is purely speculative — the hurdle would be pretty darn high from the government’s point of view,” he said. Pendill said he thinks the controversy surrounding the $15.1-billion China National Offshore Oil Corp. takeover of Nexen Inc., which has only a fifth of its assets in Canada, would be magnified greatly if Exxon tried to buy Encana, one of the top 10 largest energy companies in Canada. He added he doesn’t necessarily believe the Celtic takeover is part of consolidation trend driven by low share prices, noting that gas producer stocks have already started their recovery from earlier troughs. Exxon is buying Celtic resource play assets near Grande Cache in west central Alberta including 218,000 net hectares in the Montney shale and 41,000 net hectares in the Duvernay shale, both prospective for liquids-rich gas. Celtic’s partners in some of its Duvernay wells also got stock boosts Thursday. Yoho Resources Ltd.’s TSX Venture Exchange shares leaped 21 per cent to $2.54 and Trilogy Energy Corp., which trades on the senior exchange, jumped nearly two per cent to $28.17.

In a note Thursday, New York analyst Paul Cheng of Barclays said the deal for Celtic is the seventh major unconventional resource acquisition so far in 2012 by a western super-major. The deals add up to $8.9 billion US, he said, versus only four deals in 2011 worth $3.2 billion. “Although the industry may not have reached a definitive conclusion that North American unconventional assets offer a resource base of sufficient size and return potential to be significant within a western super-major portfolio, we think the recent trend is compelling,” he wrote. He said he thinks the deals point to a renewed appreciation by large companies of the low-risk, low-tax environment in North America, coupled with resource size that’s big enough to fuel interest. [Emphasis added]

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