This Company Is Capitalizing on the Shale Boom: Exxon Mobil Corporation (XOM), Cequence Energy Ltd (CQE)

With the announcement that it had completed its anticipated merger with Exxon Mobil Corporation (NYSE:XOM)‘s Canadian subsidiary, Calgary-based Celtic Exploration has become a wholly-owned subsidiary of one of the world’s largest energy companies. In the process, Exxon now has at its disposal the considerable shale resources that Celtic once controlled.

Depending upon the reserves’ ultimate productivity, this could give Exxon a leg up over other international energy majors and may spur a wave of consolidation in the booming North American shale sub-industry. While it will be several quarters before Exxon Mobil Corporation (NYSE:XOM) sees any direct benefit from the Celtic properties, the company’s shareholders have thus far reacted favorably to the deal. Since news of the deal’s completion became official, the company’s stock has risen by over 2 percent despite a downturn in the price of oil.

About ExxonMobil and Celtic Exploration

Irving, Texas-based ExxonMobil is one of the world’s largest integrated oil and gas producers. The company owns a diverse basket of properties throughout the world and maintains particularly robust assets in the Gulf of Mexico, West Texas, Russia’s Black Sea region, various parts of Canada, offshore areas of South America, and various coastal and offshore areas in south-east Asia and Oceania. ExxonMobil operates nearly 40,000 wells and owns significant refining and transportation assets. It also makes and distributes various petroleum-based products. Exxon Mobil Corporation (NYSE:XOM) employs around 77,000 people and earned $44.9 billion on about $428.4 billion in gross 2012 revenues.

Celtic Exploration was a relatively new exploration and development concern that prospected for oil and natural gas in various areas of western Canada. At the time of the merger, Celtic owned or claimed properties estimated to hold 140 million barrel-equivalents of oil and gas in the aggregate. The company’s signature properties included tracts around the Grande Cache, Greater Resthaven and Greater Kaybob areas in northern and western Alberta as well as the Inga area in Northeastern British Columbia. In 2012, Celtic lost around $44 million on gross revenues of $192.1 million.

How the Deal Was Structured

In the final estimation, the deal between Exxon Canada and Celtic Exploration was worth just over $2.6 billion. Under its terms, Exxon Mobil Corporation (NYSE:XOM) issued cash payments in the amount of $24.50 per share to every former Celtic shareholder. Concurrently, the company issued one share of a newly created exploration spin-off known as Kelt Exploration (KEL) for every two shares that each former shareholder owned. This transaction valued Celtic at just over $27 per share and provided long-term shareholders with a premium of about 50 percent.

As part of the merger, Exxon Mobil Corporation (NYSE:XOM) also paid off holders of Celtic’s senior 5 percent debt notes by converting them into common shares and then exchanging them according to the formula described above. As an added bonus, these debt holders received accrued interest payments of $20.56. These payments included an extra month’s worth of interest.

Competitors in the Space

It is no secret that the North American shale space has been heating up for some time. According to seasoned industry observers, this particular deal indicates that oil and gas majors are willing to pay substantial premiums for companies that own prospects in two key Alberta shale fields.