Exxon Quits 2nd-Biggest U.S. Gas Region After Prices Tumble

By Joe Carroll

Oct. 2 (Bloomberg) -- Exxon Mobil Corp., the world's biggest energy company, abandoned the second-largest U.S. natural-gas region after a supply glut slashed the value of the furnace fuel by almost half in the past three months.

Exxon sold its stakes in gas fields and a pipeline in Texas's Barnett Shale yesterday to Harding Energy Partners LLC, the closely held Dallas-based company that formed a joint venture with Exxon in 2006, Harding spokeswoman Linda Pavlik said today.

Harding, in turn, sold the gas fields and 80-mile (129- kilometer) pipeline to Oklahoma City-based Chesapeake Energy Corp., the second-largest U.S. independent gas producer, Pavlik said in a telephone interview. Patrick McGinn, a spokesman for Irving, Texas-based Exxon, confirmed the sale.

Exxon ``has a long-standing practice of continually reviewing all assets for their contribution to the company's operating needs and financial objectives, as well as their potential value to others,'' McGinn said today in an e-mailed statement.

McGinn and Pavlik declined to disclose the terms of the transaction, which included the first permit ever awarded to drill for gas within the city limits of Dallas. The Exxon- Harding venture, known as DDJET Limited LLP, never drilled the well, obtained in 2007 for a site near Dallas Baptist University, Pavlik said.

Gas for sale at the Henry Hub in Erath, Louisiana, the benchmark for prices in the largest gas-consuming regions of the U.S. Midwest and East, tumbled 44 percent since July 2 as supply increased faster than demand, according to data compiled by Bloomberg.

34-Year High

U.S. gas output jumped 8.5 percent in July to 1.86 trillion cubic feet, the highest since May 1974, according to the Energy Department in Washington. That outpaced the 6.7 percent rise in demand for that month, the most recent figures available.

Exxon had $39 billion in cash and near-cash equivalents at the end of the second quarter, thanks to record oil prices earlier this year.

Investors and lawmakers have criticized the company for spending more on stock buybacks than energy exploration and refinery expansions. Output from Exxon's wells fell to the equivalent of 3.8 million barrels of crude a day in the April- to-June period, the lowest since the third quarter of 2005.

Exxon Mobil fell 16 percent this year, on course for the largest annual drop since 1981, when the shares plunged 22 percent. The company's stock has posted annual declines five times in the past 27 years. It fell 64 cents to $77.94 as of 12:37 p.m. in composite trading on the New York Stock Exchange.

Old Pipeline

Exxon Mobil owned 80 percent of DDJET, which was formed in late 2006 after Harding approached the company about using an Exxon-owned pipeline that traverses the Barnett Shale.

The Barnett Shale may hold 39 trillion cubic feet of recoverable gas, or enough to supply the entire U.S. for almost two years, according to a 2005 assessment conducted for the Energy Department. The region trails only the Rocky Mountains in terms of gas production, according to the U.S. Geological Survey.

``Our people commitment to it is fairly modest and, in terms of the scale of what we'll do there, it will be fairly modest as well,'' Chief Executive Officer Rex Tillerson said at a February 2007 meeting with reporters in Houston. ``It really was just kind of a one-off opportunity for us.''

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net