Exxon Buys Stake in Ghana Oil Field

Exxon Mobil Corp. has agreed to buy a $4 billion stake in an oil field off the coast of Ghana, according to people involved in the deal, as the global energy giant seeks a foothold in a major new oil-producing region.

The deal is Exxon's first major purchase in a decade and appears to highlight that the company believes oil prices will rise over the long term. Some energy analysts have asserted that weak demand for the fuel can't support even the current price of $70 a barrel.

A spokesman for Exxon declined to comment. People briefed on the deal said that while the parties have reached a binding agreement, the deal hasn't yet been completed and is therefore subject to change. One outstanding issue is that the Ghanaian national oil company has the right to increase its stake, according to a person involved in the transaction.

 
The seller is Dallas-based Kosmos Energy , which was part of a group that made the 2007 offshore discovery that is estimated to hold 1.8 billion barrels of oil. Anadarko Petroleum Corp. and Tullow Oil PLC also own separate stakes in the field, known as Jubilee.

On Monday Kosmos informed bidders for its 23.5% stake in the field that it had “entered into an exclusive binding agreement” with Exxon, according to a person who had seen the letter.

The news of the deal was cheered by investors. In London trading Tullow rose 8.4% to £12.09 ($19.28). In afternoon New York trading, Anadarko was up 6.1% to $65.41 and Exxon was up 1.5% to $68.58.

Also in New York, shares of Blackstone Group LP, a part-owner of Kosmos along with private-equity firm Warburg Pincus, were up 6.1%.

The oil industry has become increasingly optimistic about the prospects for oil production off the upper West African coast. This summer, a separate consortium announced a discovery off Sierra Leone, leading analysts to speculate that the 1,100-kilometer stretch between the two finds could be dotted with buried sands containing precious light crude oil.

Exxon's entry amounts to a seal of approval. “If Exxon Mobil likes this stuff, then everyone knows it's good,” says Neil McMahon, an energy analyst with Sanford C. Bernstein.

The acquisition is the largest deal for the famously conservative company in over a decade. In the late 1990s, Exxon Corp. and Mobil Corp. combined in an $81.2 billion merger, creating the world's largest shareholder-owned oil company.

Around the same time, Exxon bid aggressively for exploration licenses in several deepwater blocks off Angola, which was then an unproven oil region emerging from years of civil war. The deal proved prescient: Angola is now a major oil producer and in 2007 became a member of the Organization of Petroleum Exporting Countries.

Opening up its wallet to purchase oil assets signals a new strategic direction for Exxon. Over the last decade, the Texas behemoth has been reluctant to make any large purchases, even as its holdings of cash and repurchased stock ballooned. At midyear, it held $15.6 billion in cash, and the value of treasury shares it has bought back since 2001 were worth $173.6 billion.

The Ghana purchase suggests that Exxon is moving to replenish its oil reserves by building its portfolio asset by asset, rather than by making a mega-deal. Indeed, analysts say that Exxon, with its $325 billion market capitalization, may be too big already in the eyes of regulators to swallow another large oil company.

In addition to buying into the new West Africa oil province, Exxon is engaged in some high-profile, deepwater exploration activities off the coasts of the Philippines, Turkey, Madagascar and Greenland. It also recently backed a large oil-sands development in Canada and a gas export facility in Australia. While none of these regions is large enough to transform the company, put together they could help Exxon maintain its oil and natural gas production and reserves.

The Kosmos deal also underscores a new willingness by Exxon to acquire assets in the face of rising financial strength and global ambition on the part of oil companies backed by the Chinese and Indian governments. China National Offshore Oil Corp. and India's Oil & Natural Gas Corp. were viewed as potential buyers for the Kosmos stake.

For major privately owned oil companies, “Access to reserves is a huge issue,” says Peter Hitchens, an oil analyst with financial services company Panmure Gordon. “In Brazil, they're having to compete with the Chinese and the Indians. So if you can get into a new play at an early stage like this, it's very desirable.”

It isn't clear which company would be the operator of Jubilee, which is expected to begin producing oil in 2010. Tullow has a 34.7% stake, larger than the share Exxon is acquiring from Kosmos. Anadarko also holds a large interest. The Ghanaian national oil company and two other companies hold small stakes.