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By Erik Kobayashi-Solomon | 12-30-2009 03:54 AM

A Supermajor Set Apart

Morningstar stock analyst Allen Good says ExxonMobil's recent bold move for XTO should pay off.

Erik Kobayashi-Solomon: Hi. I'm Erik Kobayashi-Solomon, one of the editors of Morningstar OptionInvestor, and I'm here with Morningstar's analyst covering Exxon, Allen Good. Allen, thanks for coming today.

Allen Good: Thanks for having me.

Kobayashi-Solomon: We recommended a bullish position in Exxon when Exxon's stock price dropped some when they announced the XTO acquisition. I just wanted to ask you first of all about that acquisition and Exxon in general. So, XTO is a natural gas producer focused in North America. Do you think that this strategy is a good one for Exxon? What is Exxon saying about their business?

Good: This is certainly a bold move by Exxon to move so strongly to natural gas. But for Exxon, it should seem to work out for several reasons. First of all, Exxon right now is a heavy oil producer in the sense that about 65 percent comes from oil.

Kobayashi-Solomon: Right.

Good: Oil resources are becoming less and less available to these large international oil companies.

Kobayashi-Solomon: This is where they're having to go further offshore.

Good: Further offshore, having to work with unfriendly governments, those sorts of situations. So, with XTO, Exxon is going to be able to create a platform for future acquisitions into unconventional natural gas resources. They should be able to create a lot of opportunity to add reserves and add production for them, not only in the U.S. but also in Europe, where they started to acquire unconventional acreage. So, Exxon is going to be able to put their financial backing behind a smaller player like XTO, really use their expertise, their experience, and really build out this incredibly large platform that ultimately could lead to them controlling a lot of natural gas production here in the U.S. and Europe.

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