Montreal, Canada

With spot natural gas trading more than 70% below its all-time high 3.5 years ago, some oil companies are finding good bargains among the companies that produce the cheap fuel.

Consol Energy (NYSE-CNX) offered $3.5 billion dollars yesterday for Dominion Resources' (NYSE-D) Appalachian oil and gas business. Consol is looking to diversify away from coal as new emission standards threaten the domestic viability of coal. Natural gas, however, burns far less emissions than coal and is widely regarded as the cleanest fossil fuel.

Earlier this year Exxon-Mobil (NYSE-XTO) purchased XTO Energy (NYSE-XTO), which marked a major change in the way traditional oil companies prized non-oil assets.

Exxon-Mobil's perceived value of XTO Energy serves as a reminder to value investors that natural gas ranks as one of the cheapest fossil fuels in the world at these prices. It also provides an alternative source to oil within the energy complex; natural gas is currently abundantly supplied, whereas crude oil remains in a secular long-term decline. Most major oil companies, including Exxon-Mobil, are struggling to replace their annual production of crude oil.

With the exception of the Brazilian offshore shales, most offshore oil fields (above and below ground) have already recorded peak production; many fields are either closed or in a long-term production decline. This includes the Cantarell fields in Mexico and The North Sea.

The main driver for the XTO acquisition was reserves, particularly in natural gas.

Increasingly, ExxonMobil has had difficulty replacing reserves along with most major oil companies. The worst years ever for reserve replacement were 2007, 2008 and 2009, according to The Oil Drum. In 2008, additions were officially 103% of total production, without the contribution of oil sands. Excluding oil sands, the company replaced just 27% of its annual production in 2008.

The trend now is for Big Oil to find cheap natural gas assets. The prize for investors is to isolate those assets that are deemed undervalued by the majors. In Canada, several names come to mind, including Crew Energy (Toronto-CR) and Bankers Petroleum (Toronto-BNK), among many others. Bigger companies like Talisman Energy (NYSE-TLM) also harbors attractive assets.