ConocoPhillips CEO defends $35.6 billion acquisition of Burlington Resources |

ConocoPhillips CEO defends $35.6 billion acquisition of Burlington Resources

DALLAS – The head of ConocoPhillips Co. on Tuesday said his company’s proposed $35.6 billion acquisition of oil and natural gas producer Burlington Resources Inc. makes sense even if energy prices plunge.But some analysts remained less than enthusiastic about the combination, saying ConocoPhillips overpaid, and investors sent the company’s shares down by more than 4 percent.Jim Mulva, ConocoPhillips’ chairman and chief executive, said Tuesday that buying Burlington makes sense even if the price of gas declines over time from current levels above $15 per 1,000 cubic feet to $5.Mulva also downplayed the impact of his company taking on new debt, which he said would be paid off in three years. ConocoPhillips, the third largest oil and gas producer in the U.S. behind Exxon Mobil Corp. and Chevron Corp., will finance the acquisition with existing cash and credit and new bank and bond debt.The deal, announced late Monday, further increases ConocoPhillips’s profile as a leading producer of natural gas in North America. But some analysts questioned the company’s strategy of boosting its portfolio in an area where the resource base is quickly maturing. They also noted that ConocoPhillips said the deal would cut earnings per share by 2 percent next year and closer to 4 percent in 2007.For the second straight day since news of a possible transaction surfaced, ConocoPhillips shares fell. By Tuesday afternoon, they were off $2.72 or 4.4 percent, at $58.54 after losing 2.9 percent Monday on the New York Stock Exchange. Shares of Burlington rose again, up $3.66 or 4.4 percent to $86.16, a 52-week high.Mulva said he had considered such a deal for years and spent several months negotiating with Burlington, whose chairman and CEO, Bobby S. Shackouls, said there were no other bidders for his company. Combining the companies will save about $375 million a year, and regulators probably won’t require any significant divestitures, Mulva said.The deal illustrated the surge in both the price and industry demand for natural gas. It would be the biggest transaction in the energy industry in several years.Mulva said Burlington was “an excellent complement” to the oil and gas portfolio of ConocoPhillips, the nation’s third biggest energy company.But skeptics were not convinced.”The stock is down because there is a growing realization that this is a very expensive and poor acquisition,” said Benjamin Dell, an analyst for Sanford C. Bernstein & Co. “They appear to be buying at the peak of the market.”Dell predicted that gas prices will fall sharply by the time the deal is scheduled to close next spring. He said ConocoPhillips could have expanded its reserves more cheaply through internal growth or buying another company, such as Occidental Petroleum Corp.A.G. Edwards analyst Bruce Lanni said in a research note that “the timing of the acquisition is somewhat perplexing given that management just noted at its analyst meeting (on Nov. 16) that the acquisition market appears rather lofty.”Robert S. Morris, an analyst with Banc of America Securities LLC, said the purchase price was nearly one-fifth higher than other deals this year based on Burlington’s proven reserves, reflecting ConocoPhillips’ belief that natural gas prices will remain strong. He said a higher bid for Burlington was unlikely.Constance E. Helfat, a Dartmouth professor of business strategy who writes about the energy industry, said ConocoPhillips was importantly gaining Burlington’s expertise at operating in hard-to-reach Western gas fields as an alternative to operation in risky places such as Russia.”Not every oil and gas company has this sort of expertise,” Helfat said, “so Burlington was an obvious target if you’re looking to bulk up your reserves.”But Dell, the Bernstein analyst, said that Burlington expertise could be diluted if key employees leave. Shackouls and executive vice president of corporate development Steven J. Shapiro have indicated they will retire after the acquisition.The deal calls for investors in Burlington to receive $46.50 in cash and 0.7214 shares of ConocoPhillips common stock for each Burlington share they own. The companies said that was equal to $92 per share, based on the closing price of ConocoPhillips stock on Friday.Existing ConocoPhillips shareholders would own about 83 percent of the company after the transaction and Burlington shareholders about 17 percent.Vail, Colorado

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