Suppose that you were working as an equity analyst in 2005 and were assigned the task of valuing the proposed acquisition, which is described in the following press release:
Houston, Texas (December 12, 2005)€”ConocoPhillips (NYSE: COP) and Burlington Resources Inc. (NYSE: BR) announced today they have signed a definitive agreement under which ConocoPhillips will acquire Burlington Resources in a transaction valued at $ 33.9 billion. The transaction, upon approval by Burlington Resources shareholders, will provide ConocoPhillips with extensive, high- quality natural gas exploration and production assets, primarily located in North America. The Burlington Resources port-folio provides a strong complement to ConocoPhillips€™ global portfolio of integrated exploration, production, refining, and energy transportation operations, thereby positioning the combined company for future growth. (Source: www. ConocoPhillips . com/ NR/ rdonlyres/ 86E7B7A6- B953- 4D0D- 9B45- .com/NR/rdonlyres/86E7B7A6-B953-4D0D-9B45-E4F1016DD8FD/0/cop_burlington pressrelease. pdf)
In his letter to ConocoPhillips shareholders contained in the company€™s 2005 annual report, CEO Jim Mulva described the rationale for the proposed Burlington acquisition as follows: Burlington€™s near- term production profile is robust and growing, plus Burlington possesses an extensive inventory of prospects and significant land positions in the most promising basins in North America, primarily onshore. With this access to high- quality, long- life reserves, the acquisition enhances our production growth from both conventional and unconventional gas resources. Specifically, our portfolio will be bolstered by opportunities to enhance production and gain operating synergies in primarily onshore. With this access to high- quality, long- life reserves, the acquisition enhances our production growth from both conventional and unconventional gas resources. Specifically, our portfolio will be bolstered by opportunities to enhance production and gain operating synergies in the San Juan Basin of the United States and by an expanded presence and better utilization of our assets in Western Canada. In addition to growth possibilities, these assets also provide significant cash generation potential well into the future.
Beyond adding to production and reserves, Burlington also brings well- recognized technical expertise that, together with ConocoPhillips€™ existing upstream capabilities, will create a superior organization to capitalize on the expanded asset base. We do not anticipate that the $ 33.9 billion acquisition will require asset sales within either ConocoPhillips or Burlington, nor should it change our organic growth plans for the company. We expect to achieve synergies and pretax cost savings of approximately $ 375 million annually, after the operations of the two companies are fully integrated.
We anticipate immediate and future cash generation from this transaction that will aid in the rapid reduction of debt incurred for the acquisition and go toward the redemployment of cash into strategic areas of growth. Burlington shareholders will vote on the proposed transaction at a meeting on March 30, 2006.(since:http//wh.conocophillips.com/about/report/ar05/letter.htm)

However, at an analysts€™ meeting, CEO Mulva hinted that the price ConocoPhillips paid for Burlington might be viewed as high by some: In terms of mergers and acquisitions, it really becomes more and more of a seller€™s market, and terms and conditions are not that attractive to buyers. ( Source: news . softpedia. com/ news/ ConocoPhillips- Plans- To- Acquire- Burlington - 14628. shtml) .
Your task is to answer the following basic question: €œ Is Burlington Resources worth the $ 35.6 billion offered by ConocoPhillips?€ Although you are new to the exploration and production ( E& P) industry, you have quickly learned that the method of multiples, or market- based comparables, and specifically the ratio of enterprise value ( EV) to EBITDAX are typically used as benchmarks to value E& P companies. In this context, EBITDAX stands for €œearnings before interest, taxes, depreciation and amortization, and exploration expenses.€ EBITDAX differs from EBITDA in that it adds back exploration expenses in addition to depreciation and amortization€” hence the term EBITDAX.
a. Using the method of multiples based on enterprise value to EBITDAX, the P/ E ratio, and the enterprise value to EBITDA ratio, what should the acquisition price be for Burlington Resources shares? Use the following companies as comparables for your analysis: Chesapeake Energy, XTO Energy, Devon Energy, and Apache. Year- end 2004 balance sheets and income statement summary information as well as market capitalization data are provided in Exhibit P8- 13.1 (pp. 307€“ 310) for Burlington Resources and each of the comparable firms.
b. Which of the four firms used as comparables do you think is the best comparison firm for Burlington Resources? Why?
c. Based on your analysis of comparables, did Conocophills pay too much or find a bargain? Explain your answer.
d. What additional information would help you with this analysis?

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Period ending 31-Doc-04 31-Dec404 31-Dec-04 Incomne statement (SO 7454000 Operating esprases Seling, general, and administeathe Dapreciation, depleletion, and amortization Operating income o kess lacome from continuing operatioB Total other incomelespemses (set) Earaings before iaterest and taxer -30081 Net income frots contiauing operstions Effect of accouating changes Pretemed stock and other adjustmeats 131 Net income applicalile to consmon shares 1663074 Otber current assets current awets Long-term inwstments plant, and equipmeat 7444 384 13 860 399 Deterred loos-tern asetchar payable t kong-term debt t liabilities Deterred long-term liability charges CIK 31-Dec-04 Ticker Perñod endin Stockbolders' equity Preferred stock Common stock Retained earnings Treasury stock Capital surplus Other stockholders' oquity Total stockholders equity Total liahiliies and stockbokders equity Otber financial dat Exploration ezpenses (millions) Shares outstanding (millions) Year-end 3004 closing priou Market capitakzation(millioas) NTO 31-Dec.04 DVN APA BR 31-Dec-04 31-Dec-04 31-Dec-04 490.906 3,169 262987 -22.091 2440,105 12.193 3,162883 98387 30320 017339413 97 3252 4,106 182 129482 1,078000 8,204421 48.000 3.693000 5000 4.163000 0308.000 1239.553 -24.917 I4I0135 -28.883 2599,373 6110,372 9167,000 845,000 13,674.80 29,73680 1550248 15744,000 599.5 3329 $3538 $11,778.00 $1843 2532 1650 $417380 $ 23000 327.5 279.0 482.0 3892 18.799 44 3920 $1656168 XTO Energy Inc. (and its subsidianes) engages in the aoguisition, development,exploitaton, and exploration of producing oll and gas properties in the Uaited States. The company also produces,processes, markets, and transports ol and natural gas Its proved reserves ase principatly localed in the Eastem Region incduding the East Texas Badio and nonh estern Louisiana: Baraett Shalo of North Tezax San Juan and Raton Basins of Nes Mesico and Colorado, Pemian and Sosth Teas Regon: Mid-Continent and Rocdky Meuntain Region in Wyoming, Kansas, Oklaboma, and Arkansas, nd Midile Ground Shoal Feld of Alastax CokIneAsof Deoanber 31,2005,the company had esimated proved reserves of 609 tiltion cabic feet of natural gas,47A million barels of natura as Squich, and 287 ullion barrels of od Chesapeake Eser Chesapeake Energy Corporaton engages is the development, aoquibition, prodection, exploration, and marketing of onshote oll and natural gas properties in the United States Its proetis aeocated in Oklahoma, Tes Artansas Lousiasa, Kansas Motaa, Colorado, Noth Dakota, NewMesico, West Virgiaia, Kentucky, Ohio, New Yock. Maryland Michigan, Penantani. Teannee, and Vrginī·As of December 31. 2005 the compa y had proved developed and