Exxon Fires Up Acquisition Engine, Buys Kosmos' Stake in Jubilee Oil Field

(MoneyWatch)  Exxon Mobil is finally putting its large cash position to use with the acquisition of Kosmos Energy's stake in the Jubilee oil field offshore Ghana.

Exxon is close to finalizing the deal, the WSJ reported Tuesday. Analysts have previously valued Kosmos' oil field holdings in Ghana at $3 billion to $6 billion. More recent reports have pegged the value near $4 billion.

Kosmos holds about a 23.5 percent interest in the Jubilee field, home of one of the largest oil finds in the past decade in West Africa. Anadarko Petroleum, the UK's Tullow Oil and Ghana National Petroleum Corp. also are partners in the field.

So what does it mean when a conservative super major -- the world's largest publicly traded company -- makes its heftiest acquisition in a decade?

For one, its confirms the value of Ghana's offshore oil blocks and the relative low risk of investing in the country. Ghana is considered stable compared to other West African countries, like Nigeria, where other larger oil companies, including Exxon, have focused their exploration efforts.

A growing number of companies and countries -- such as China's pursuit of Kosmos and Addax Petroleum-- have become increasingly interested in oil assets in West Africa. And why not? Kosmos has estimated the Jubilee field could potenitally hold recoverable oil and gas reserves between 650 million and 2 billion barrels of oil equivalent.

Exxon is one of the largest producers in Africa and has operations in Angola, Chad, Cameroon, Equatorial Guinea and Nigeria. Company also is exploring for oil in Libya, Madagascar, the Republic of Congo and the Nigeria-Sao Tome and Principe Joint Development Zone.

But Exxon had held back on jumping on Ghana bandwagon -- until now.

The acquisition also hints at a return to price stability within the market. Exxon has held back from acquisitions and instead has used its large cash position to buy back shares and capital projects. Gross share purchases through the first half of 2009 were $13.1 billion, reducing shares outstanding by 3.4 percent, according to the company's second-quarter earnings statement.

The company, which is sitting on about $15.6 billion in cash (as of July), has changed its traditional stock repurchase, dividends and capital expenditure strategy. Exxon probably won't start throwing its cash around will nilly. But it signals an uptick in its typically tepid acquisition engine.

Other winners in the deal? Kosmos' private equity backers, The Blackstone Group and Warburg Pincus, of course. The two private equity firms invested $300 million in 2004 and then another $500 million last yearin the Kosmos venture. If Kosmos sells for $4 billion -- as analysts and reports suggest -- that would be a five-fold return on their investment.