Fitch Ratings anticipates that ExxonMobil Corporation's (NYSE: XOM) acquisition of XTO Energy, Inc (NYSE: XTO) will not impact ExxonMobil's ratings. Under the terms of the deal, ExxonMobil will exchange 0.7098 shares per XTO share. The total transaction value is estimated at $41 billion and includes the expected assumption of approximately $10.4 billion in XTO debt by ExxonMobil. Closing is anticipated in the second quarter of 2010 and is subject to XTO shareholder approval and regulatory review.
The transaction is expected to significantly enhance ExxonMobil's unconventional resource base and technical capabilities. ExxonMobil has sizable global unconventional resources including large net acreage positions in North America (Marcellus Shale, Haynesville, Piceance Basin, Horn River Basin), Europe (Germany, Hungary, Poland) and South America (Argentina). XTO has strong expertise in unconventional resources and is exposed to all major unconventional resource basins in the U.S.
Post closing, the combined entity is expected to have nearly 8 million net acres of unconventional resources, 60% of which are located outside the U.S. XTO's proven (p1) reserves at year-end 2008 were 2.31 billion boe (barrels of oil equivalent), and its production was 476,000 barrels per day (bpd), of which approximately 82% was natural gas. XTO also has a small amount of North Sea production (less than 1% of total), as well as conventional onshore resources in the U.S. ExxonMobil's ability to leverage XTO's capabilities in unconventional resources across the combined entity's broader portfolio remains a key strategic driver for the acquisition; therefore, retention of key XTO geological staff is expected to be a critical factor to the success of the acquisition going forward.
On a pro forma basis at Sept. 30, 2009, the combined company would have had $19.98 billion in debt, approximately double that of ExxonMobil on a standalone basis ($9.6 billion). However, when measured against large cash reserves of approximately $12.5 billion, the combined entity's pro forma net debt is low on an absolute basis at just $7.34 billion. As calculated by Fitch, pro forma debt/boe metrics have also increased but remain low on an absolute basis. At Sept. 30, 2009 the combined entity would have had pro-forma debt/boe metrics as follows: net debt of $0.51/boe p1 reserves; E&P debt of $1.05/boe of p1 reserves; and E&P debt of $1.57/boe of proven developed (PD) reserves (calculations use year-end [YE] 2008 reserve data for both XOM and XTO and assume 72% allocation of total debt to E&P for XOM and 100% allocation of debt for XTO). Pro-forma free cash flow of the combined companies at Sept. 30, 2009 was $3.03 billion. Looking forward, Fitch anticipates that the company will continue to be managed conservatively and will maintain high levels of financial flexibility post-integration.
Fitch's current ratings for Exxon Mobil Corporation (ExxonMobil) are as follows:
--Issuer Default Rating (IDR) 'AAA';
--Senior Unsecured Debt 'AAA';
--Commercial Paper 'F1+';
--Short Term IDR 'F1+'.
The Rating Outlook is Stable.
ExxonMobil's ratings reflect:
--the company's unsurpassed depth, breadth, and quality of ExxonMobil's asset portfolio and strong competitive position in all parts of the integrated oil chain;
--the company's disciplined returns-based investment focus and best-in-class ability to generate returns on capital employed (ROCEs) with low levels of financial leverage;
--its very strong cash flow generation capability and historical record of maintaining the highest levels of credit quality throughout previous cycles in the oil industry;
--the strategic value the rating confers on the company in negotiations with National Oil Companies (NOCs) and other international partners when it comes to long-term deals.
Worldwide, ExxonMobil is the largest publicly traded integrated oil company in terms of proven oil & gas reserves, with some 21.2 billion boe proven reserves (including equity affiliates). Total book assets at Sept. 30, 2009 were $229.3 billion. On the upstream side, the company has a large proven reserve base and production of approximately 3.92 million boepd. Downstream, ExxonMobil is the largest refiner in the world with approximately 6 million barrels per day of refining capacity in 37 refineries. The marketing arm of the segment sells gasoline and other fuels at stations worldwide. The company is also a worldwide leader in the chemicals business, and a significant portion of its petrochemicals and lubes capacity is integrated with existing refinery facilities. Overall, the upstream component of ExxonMobil provides the bulk of the company's earnings and cash flow. The company is active in more than 200 countries and territories and had a worldwide regular employee count of 79,900 at year-end 2008, excluding company-operated retail site employees (of which there were 24,800).
Additional information is available at 'www.fitchratings.com'.
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Contacts:
Fitch Ratings
Mark C. Sadeghian, CFA, +1-312-368-2090 (Chicago)
Sean
T. Sexton, CFA, +1-312-368-3130 (Chicago)
Cindy Stoller,
+1-212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com