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ConocoPhillips in talks to buy Burlington

Oil major ConocoPhillips is in advanced talks to buy oil and gas producer Burlington Resources Inc. for more than $30 billion, the Wall Street Journal online edition reported on Sunday.
/ Source: Reuters

Oil major ConocoPhillips is in talks to buy independent natural gas producer Burlington Resources Inc. for more than $30 billion, sources familiar with the situation said on Monday.

The combined entity would be the largest North American natural gas producer, and shares across the sector jumped on speculation that other gas producers could become attractive takeout targets.

Both Conoco and Burlington declined comment.

One source familiar with the talks said the aim was to have a deal nailed down by mid-week, though the decline in Conoco shares on Monday could affect the price of the deal and slow the talks.

Adding Burlington to its portfolio would increase Conoco’s natural gas production by more than 50 percent, at a time when natural gas is pushing record high prices of $15 per million British thermal units. Prices on the NYMEX remain about $10 per mmBtu for delivery through the spring of 2007, an indication that markets expect gas to remain costly for the forseeable future.

The combined Conoco/Burlington would have U.S. and Canada gas production of about 3.57 billion cubic feet per day, outstripping North American gas leader EnCana Corp., which produced 3.22 billion cubic feet per day in the last quarter.

“It is a huge bet on natural gas. This is the most lucrative part in the energy chain,” said Fadel Gheit, an analyst at Oppenheimer & Co.

“It’s a very good deal, although the street might perceive it negatively that ConocoPhillips is paying such a premium. But I think these assets today will be worth a lot more tomorrow or next year,” Gheit said.

Canadian firms surge
Large Canadian gas producers also surged on news of interest in Burlington. As much as 35 percent of Burlington’s overall production was derived from Canada last year, following three acquisitions between 1999 and 2002.

“A lot of people are saying, ’Look, if Conoco and others are looking at large U.S. independents for their gas position, certainly you’ve got to believe they’d be just as interested in the Canadians.’ And many of them are much cheaper,” said Tom Ebbern, analyst at Tristone Capital Inc.

In October, oil major Royal Dutch Shell was reported to be considering a bid for Calgary-based EnCana, North America’s biggest gas producer. EnCana said it was unaware of any bid in the works, however.

Other suitors possible
While few companies might have the financial wherewithal to make a competing bid, analysts did not dismiss the possibility, especially for companies looking to make a bet on gas.

“Since Burlington Resources is one of a scarce species, somebody might want to think of this as one of their few remaining opportunities,” said Phil Dodge, an energy analyst at the Stanford Group.

“This is a strategic move as much as a move that would initially add a lot of value,” Dodge said. “They’re looking out over the next 10 to 15 years instead of the next two years.”

Others said it was in Burlington’s interest to proceed slowly, given that its stock has been on a run of late. Since hitting a recent low on November 10 the stock was up more than 27 percent as of Monday morning.

“I don’t know why they should be in any particular rush to sell given where the stock was a couple of months ago,” said Dan Manion, portfolio manager of the Sentinel Common Stock Fund, which is overweight the energy sector.

“I think they’ve got the luxury of being patient and getting the best deal,” Manion said.