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ConocoPhillips, the third-largest U.S. oil company, would increase its natural-gas reserves in the U.S. and Canada at a time of record prices by acquiring Burlington Resources Inc.

ConocoPhillips, the third-largest U.S. oil company, would increase its natural-gas reserves in the U.S. and Canada at a time of record prices by acquiring Burlington Resources Inc., investors and analysts said.

Burlington would make ConocoPhillips the No. 2 U.S. gas producer behind London-based BP Plc. The company is sixth today. ConocoPhillips is in advanced talks to buy Burlington for more than $ 30 billion, the Wall Street Journal reported, citing unidentified people familiar with the matter.

“This is probably a very good move for ConocoPhillips because Burlington is one of the best-positioned domestic natural- gas producers,” said Stephen Leeb, who oversees $ 150 million at Leeb Capital Management in New York and owns ConocoPhillips shares. “Conoco has basically realized they’re not going to grow reserves on their own.”

Energy producers are turning to acquisitions because exploration possibilities are limited in the richest gas and oil regions. This year has already been the busiest for energy takeovers since 1999. Chevron Corp. in August bought Unocal Corp. for $ 17.8 billion to boost natural gas holdings in Asia.

ConocoPhillips last year bought a stake in Russia’s OAO Lukoil to increase its presence in Russia, the world’s second- biggest oil exporter behind Saudi Arabia.

A $ 30 billion acquisition would be the biggest oil-industry merger since Chevron agreed to buy Texaco Inc. for $ 45.8 billion in 2001. ConocoPhillips spokesman Sam Falcona and Burlington spokesman James Bartlett declined to comment on the report of talks when reached by telephone late yesterday. Both companies are based in Houston.

Gas Output

Purchasing Burlington would boost ConocoPhillips’ U.S. gas reserves, excluding Alaska, by 88 percent to 7.979 trillion cubic feet, according to company filings. It would increase U.S. gas output by 77 percent, adding to holdings in the San Juan, Anadarko and Wind River basins that stretch from New Mexico to Wyoming.

The price of natural gas, the most widely used U.S. heating fuel, more than doubled this year as rising demand stretched supplies. Output is declining at older wells and a series of hurricanes slashed production in the Gulf of Mexico.

Gas futures rose 25 percent in the past three weeks on the New York Mercantile Exchange, a rally touched off by the first period of cold weather of this winter season. Gas touched a record $ 15.52 per million British thermal units on Dec. 9.

Other large oil companies may also be looking for natural- gas producers to buy. Canada’s Globe and Mail in October cited unnamed sources saying EnCana Corp., the largest producer of natural gas in the U.S. and Canada, rejected an offer for as much as $ 65 a share from Royal Dutch Shell Plc. EnCana denied it was in take-over talks.

`Small Premium’

At $ 30 billion, the price tag would be the equivalent of $ 79.36 for each Burlington share, a 4.3 percent premium to the Dec. 9 close of $ 76.09. “It’s a relatively small premium for Conoco to pay,” said Leeb.

ConocoPhillips already operates in some of the same U.S. regions as Burlington, such as the Permian Basin in Texas and New Mexico’s San Juan basin. Such overlaps would help ConocoPhillips rein in soaring costs for drilling rigs, manpower and pipes, said Fadel Gheit an analyst at Oppenheimer & Co. who rates shares of both ConocoPhillips and Burlington as buy.

Burlington is the No. 12 U.S. natural-gas producer, based on output for the first six months of this year, according to the Natural Gas Supply Association, a trade group.

Buying Spree

Burlington traces its roots to railroad land grants in 1864 from U.S. President Abraham Lincoln. The company’s shares jumped 75 percent this year as rising gas demand and supply disruptions in the Gulf of Mexico boosted prices. The company had profit of $ 1.756 billion during the first nine months of 2005, up 56 percent from a year earlier.

ConocoPhillips’s stock jumped 45 percent this year, the biggest gain among the three largest U.S. energy companies. Exxon Mobil Corp., based in Irving, Texas, is the biggest, followed by San Ramon, California-based Chevron Corp.

U.S. energy companies have already agreed to spend $ 162 billion so far this year on mergers and acquisitions, almost double what they spent in 2004 and the highest annual total since 1999, when they spent $ 202 billion.

Source : quote.bloomberg.com

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