North American Natural Gas Producers Move Forward in the Face of Skepticism (BR, COP, ECA)

Monday’s $30 billion takeover of Burlington Resources (BR) by ConocoPhillips (COP) was questioned by analysts wondering if ConocoPhillips overpaid. After all, why pony up for gas assets now when the natural gas price was expected to decline? Meanwhile, RealMoney.com published an article entitled EnCana Shares May Be Full of Hot Air. The article was critical of EnCana (ECA) having to spend more money to discover less gas when compared to Burlington. The perceived value of ECA and BR are lower outside of the gaspatch than within. What do the insiders know?

Burlington and Encana share some history. Both companies got a head start in the oil and gas business through land grants and rights of way for railway construction. In 1864 Northern Pacific Railway Company (predecessor to Burlington Northern Railroad Company) received 40 million acres (an area the size of Washington State). The Canadian Pacific Railway (a predecessor to EnCana) received 25 million acres in 1864 (an area the size of England).

Natural gas prices in North America are the highest in the world. Explorers are currently running ragged on an “exploration treadmill