UPDATE 4-Exxon to buy Canada's Celtic Exploration for C$2.6 bln

Wed Oct 17, 2012 3:44pm EDT

* Exxon to pay C$24.50 for each share of Celtic
    * Deal gives Exxon vast tracts of shale assets in Canada
    * Offer is a 35 pct premium to Celtic's close on Tuesday
    * Celtic shares up 45 pct, Exxon's at highest since 2008


    By Scott Haggett
    CALGARY, Alberta, Oct 17 (Reuters) - Exxon Mobil Corp
 agreed to buy Celtic Exploration Ltd for C$2.6
billion ($2.64 billion), in a deal to raise its presence in some
of Western Canada's most promising shale oil and gas regions.  
    The transaction, announced Wednesday, will give Exxon vast
tracts in the liquids-rich Montney shale gas region in
northeastern British Columbia. It will join other world-scale
energy companies looking to tap Montney's massive reserves to
feed planned liquefied natural gas plants planned for province's
Pacific coast.
    It will also gain a stake in Alberta's promising Duvernay
shale play, an early stage development where peers such as 
Chevron Corp and ConocoPhillips have already
taken big stakes. 
    Exxon and other global oil majors are buying oil and gas
assets in North America as they struggle to boost output in a
sector where vast energy resources are tightly controlled by
countries like Brazil and Russia. 
    Exxon Mobil started a big push into in unconventional
resources like shale with its 2010 purchase of XTO Energy. Since
then, Exxon has steadily added shale gas and shale oil reserves
in North America as it works to boost production.
    "This acquisition will add significant liquids-rich
resources to our existing North American unconventional
portfolio," Andrew Barry, president of ExxonMobil Canada, said
in a statement. 
    In September, Exxon agreed to buy Denbury Resources Inc's
 crude oil properties in the Bakken shale for $1.6
billion. 
    Since it was formed in 2002, Celtic, led by Chief Executive
David Wilson, has focused on finding liquids-rich gas reserves
that fetch a premium compared with dry natural gas and on
acquiring lands in the most promising of Canada's shale regions.
    The Montney region of British Columbia has 450 trillion
cubic feet of gas in place, according the province's government,
though only a fraction of that could be recovered using the
hydraulic fracturing techniques that transformed oil and gas
production elsewhere in North America. 
    The Duvernay shales, a 50,000 square-kilometer (19,300
square-mile) region stretching down the Rocky Mountain foothills
of central Alberta, is estimated by some analysts to contain
more than 750 tcf of liquids-rich gas, enough to support the
ambitions of the world's largest oil companies. 
    "It fits the bill for a company like Exxon," said Matthew
Taylor, an analyst with National Bank Financial. 
    Celtic's "management team is known for its exploration
expertise and they took it to the level where a major (oil
company) can now step in and basically go into gas manufacturing
mode," he said.
    Exxon said its Canadian subsidiary, ExxonMobil Canada, will
pay C$24.50 for each share of Celtic, a 35 percent premium to
Celtic's closing price on the Toronto Stock Exchange on Tuesday
but below its 52-week high of C$27.08.  
    And for each common share tendered, Celtic shareholders will
also receive half a share in a new spin-off company led by
Celtic's current management team. The value of the new firm has
yet to be determined.. 
    "As the dust settles around this transaction and (Celtic)
gets out there and talks a bit more about it, we'll see where it
trades," Taylor said. "You would expect a spinco with this
caliber of management to garner a premium."
    The new company will house a gas property at Grand Cache,
Alberta; a liquids-rich natural gas property at Inga, British
Columbia; and an oil prospect at Karr, Alberta.  
    Exxon's bid is the latest in a wave of takeovers in the
energy rich provinces of Alberta and British Columbia, where the
bulk of Celtic's assets are located. 
    The Canadian government is currently reviewing a C$15.1
billion bid by Chinese state-owned oil major CNOOC Ltd 
 for Nexen Inc <NXY.TO, as well as a C$5.2 billion bid by
Malaysian state oil company Petronas for Progress
Energy Resources Corp as it also looks for a foothold
in the Montney region.  
    Exxon said that Imperial Oil Ltd, its 70 percent
owned Canadian affiliate, is not participating in the
acquisition but has the option to take a half interest in the
Celtic properties. 
    Imperial said earlier this year it was examining the
potential of developing an LNG plant that could ship gas from
northeastern British Columbia to Asian markets. 
    Celtic shares were up C$8.16, or 45 percent, to C$26.28 by
late afternoon on the Toronto Stock Exchange while Exxon shares
climbed 87 cents, or 0.9 percent, to $93.25 in New York after
earlier touching $93.54, their highest since May 2008.
    Shares of other Canadian companies with Western Canadian
shale gas holdings also rose. Paramount Resources Ltd 
was up C$2.34, or 7.4 percent, to C$33.93 in Toronto, while
Painted Pony Petroleum Ltd gained 68 Canadian cents, or
6.1 percent, to C$11.40 on the TSX Venture Exchange.
    With the acquisition, Exxon will add 545,000 acres of
exploration lands in the Montney region and 104,000 acres of
Duvernay properties that Celtic estimates contain 128 million
barrels of oil equivalent of proved and probable reserves,
three-quarters of which are natural gas. 
    Celtic produces 72 million cubic feet of gas per day and
4,000 barrels per day of oil and natural gas liquids. 
    Including payments for Celtic's convertible debentures, and
Celtic's bank debt and working capital obligations, the deal is
valued at C$3.1 billion, Celtic said in a statement.
    The deal has been unanimously approved by Celtic's board of
directors.