Friday, January 29, 2010

Natural Gas is a Buy: Exxon (NYSE: XOM) purchase of XTO Energy Has Set the Market on an Irreversible Path of Consolidation and Expansion

January 29, 2010

For public interest, senior energy executive and institutional investor Karl W. Miller, today issued the following statement through his advisors regarding consolidation in the U.S. Natural Gas Industry

As announced, the largest oil company in the world, Exxon (NYSE: XOM) has made a massive investment in the U.S. through the purchase of XTO Energy, a natural gas producer. This is a clear and direct signal that natural gas is going to be a major factor in the U.S. Energy complex for many years to come.

Ironically, Obama, Reid and Pelosi have done everything in their power to ignore this fact and pretend like there is no elephant in the room. Presidents, Senators, and Speakers of the house come and go, but elephants like XOM live forever and make it a point to insure their investments are protected and prosper.

The direction of the political landscape has changed significantly, as progressive Democrats have formed a caucus within the broader Democrat supermajority and is moving against Obama, Harry Reid, and Nancy Pelosi combined unbridled policy. The progressive Democrats got the message from the American people through the recent special elections in Massachusetts.

XOM reports earnings on Monday, February 1, 2010 and the markets certainly know the elephant is in the room and back in the U.S. Energy market in a major way. When the elephant moves, so does the market, and Mr. Miller fully expects Chevron, BP, Occidental Petroleum and other major oil and gas producers to follow through additional acquisitions of natural gas producers like Anadarko, Devon Energy, Chesapeake Energy, among others in the U.S. in relatively short order.

The key point to these potential acquisitions of natural gas producers by other major oil companies is that while they would certainly accept any subsidies provided to the natural gas industry, they don’t need them to expand the industry. They all have sufficient capital and access to capital to fund their acquisitions, production expansion and most importantly, distribution, whether it be in fueling truck fleets or other uses. Even without any additional acquisitions, "rising tides floats all boats" doctrine is in place.

Finally lest we all forget, we already have a very comprehensive and established natural gas infrastructure, hundreds of natural gas power plants, most of which are fairly new. And finally, the more renewable energy assets we put on the ground, primarily wind and solar, the more natural gas power plants we need to construct to balance the intermittent and volatile energy output from these renewable assets.

The net conclusion is natural gas demand is rising and going to become a much larger part of the overall U.S. economy, will drive tremendous job growth, far more than a boutique renewable energy industry, and is the cleanest fuel that the U.S. has access to in reasonable abundance, subject to construction of more pipeline distribution infrastructure throughout the Country.

To ignore these compelling and game changing events in the natural gas industry would not only be foolish, but financially costly to all investors.

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