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$30B oil takeover reported in works

ConocoPhillips is in talks to acquire oil and gas producer Burlington Resources, whose shares rise 8 percent.

Associated Press
Published December 13, 2005

DALLAS - Published reports Monday that said oil and gas producer Burlington Resources Inc. is in advanced talks to be acquired for more than $30-billion by ConocoPhillips, the nation's third biggest oil company, pushed shares of Burlington up more than 8 percent.

The Wall Street Journal said the deal would likely be worth more than $30-billion, while the New York Times said it would be worth more than $31-billion. The Journal cited unidentified people familiar with the matter while the New York Times attributed its report to unnamed executives involved in the negotiations.

Both companies are based in Houston. Spokesmen for both declined to comment.

Shares of Burlington Resources rose $6.41, or 8.4 percent, to close at $82.50 Monday on the New York Stock Exchange. Investors drove shares of ConocoPhillips down $1.82, or 2.9 percent, to close at $61.25.

A takeover would be the largest in the oil and gas field in several years.

Analysts said ConocoPhillips was interested in Burlington Resources' operations in gas fields in North America, which have gained in value as strong demand pushed prices higher.

They said large oil companies, which are enjoying record profits and sitting on huge cash reserves, would look to acquire other independents, such as EnCana Corp., Devon Energy Corp., Anadarko Petroleum Corp., Chesapeake Energy Corp. and Pioneer Natural Resources Co.

Analysts said the cost of exploring for oil has risen, making acquisitions the quickest and easiest way for the big players to grow even larger.

"It's cheaper for companies to buy production and reserves on Wall Street than go drill for it," said Fadel Gheit, an analyst with Oppenheimer & Co. "It's instant gratification."

Gheit said ConocoPhillips would be paying a very slim premium for Burlington Resources shares, which he said reflected the fact that Burlington shares already had risen 75 percent from the beginning of the year through Friday's close.

A combined ConocoPhillips and Burlington could shave capital spending 5 to 10 percent without hurting production simply by eliminating duplication, he said.

JP Morgan analyst Jennifer Rowland said in a note to clients that the transaction, if completed, would nearly double ConocoPhillips' global natural gas production. However, the energy company had $2.8-billion in available cash at the end of the third quarter, meaning a deal would likely be funded with equity, she said, "which may dilute earnings and returns in the near term."

Goldman Sachs analyst Arjun N. Murti said a deal "would bode well" for most of the exploration and production stocks he watches, particularly those companies focused on North American natural gas production.

Talk of a Burlington Resources deal also drove prices of other independents and potential acquisition targets higher.

[Last modified December 13, 2005, 01:30:24]

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