ConocoPhillips, already the third largest oil company in the US, is close to swallowing up its rival Burlington Resources, in an aggressive gamble on the future prospects of natural gas, which soared in price in recent weeks in the US and Britain.
There was no comment from either company to reports yesterday that they were in the final stages of negotiating an acquisition and that details might be put on the table this week. Some sources cautioned that the talks could still founder.
The sudden spike in natural gas prices has inevitably drawn suitors to the door of Burlington, which has important natural gas exploration sites around the world, including in North America and in offshore areas of China. Its share price has rocketed by more than 25 per cent since early November.
Any deal with ConocoPhillips would transform the energy industry landscape. The most recent market value of Burlington is about $28.7bn (£16.2bn). An acquistion by Conoco would eclipse the other biggest oil deal of the year - the purchase of Unocol by Chevron for $17bn.
If it can close the deal, Conoco's production of natural gas would increase more than 50 per cent, improving its long-term strategic position amid the recent turbulence of the crude oil market.
"It's a very good deal, although the street might perceive it negatively that Conoco is paying such a premium," Fadel Gheit, an analyst at Oppenheimer in New York, said. "It's a huge bet on natural gas. This is the most lucrative part in the energy chain."
Other analysts agreed such a transaction seemed irresistible, particularly because of Burlington's focus on natural gas and new drilling technologies it has recently developed.
"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 at the Stanford Group.
"This is a strategic move as much as a move that would initially add a lot of value. They're looking out over the next 10 to 15 years instead of the next two years."
But some observers cautioned that Burlington could yet baulk at running too quickly into Conoco's embrace, particularly since its stock price has been on such a good run recently. Under an alternative scenario, it is far from impossible that another energy company may show up to try to wrest the company from Conoco.Reuse content