ExxonMobil (XOM) goes its own way. Again.
When oil prices were soaring in 2006 and 2007, ExxonMobil refused to get sucked into a race to see who could spend more on exploration.
Now that everyone else is cutting back on capital budgets (and some companies such as Chevron (CVX) are cutting jobs) ExxonMobil has announced that it will increase capital spending by 4% in 2010 to almost $28 billion.
But that extra money isn’t going into drilling, exploring, or developing oil. Instead ExxonMobil is increasing an already big bet on natural gas. (The company bought U.S. natural gas producer XTO Energy (XTO) for $28 billion in stock in a deal that’s expected to close in the second quarter of 2010.)
You can see the emphasis on spending on natural gas projects in 2009-2012 just be scanning the company’s March 11 presentation to analysts. (You can find a copy of that presentation here http://media.corporate-ir.net/media_files/webcast/2010/mar/Exxon/final.pdf )
New acquisitions that the company highlights include 290,000 acres in the Marcellus natural gas shale formation and in Canada’s Horn River gas shale region.
Project start ups in 2009 include the Qatargas Trains 4 and 5, RasGas, Al Khaleej Gas, and the Adriatic and South Hook liquefied natural gas (LNG) terminals.
For 2010-2012 the two projects that start the company’s list are RasGas Train 7 and the Golden Pass LNG terminal.
You have to travel further down the timeline to find significant mention of potential new oil production.
The company has completed initial tests at Iraq’s West Qurna field and plans exploration in 2010 and 2011 in offshore fields in Southeast Asia, the Black Sea, Libya, and Brazil.
ExxonMobil, said CEO Rex Tillerson, projects that oil and natural gas production will climb 3% to 4% in 2010. That’s sure a lot better than Chevron’s recent forecast of a 1% increase in production this year.
These may be tough times for Western oil majors but ExxonMobil continues to be the star of the class.
cschu5… I agree with your concern about natual gas prices. Living in coal bed methane country I know that there is still capacity to increase production (unless sage grouse become a protected species). Another question mark would be whether “frac”ing gets more regulation.
Jim:
I’m really glad you posted this, as I have been wondering what to do with my XOM. It has not performed well recently. I have been looking for a good entry point for PBR too.
How is the price of nat gas to increase when the advent of horizontal drilling has increased the output of gas wells tremendously? Everyone is doing it and that is a big reason for the surplus supply now, not just the recession. I also understand that Russian nat gas is entering our market now via a large lng terminal I think in Louisiana. My view is it will be many years before demand outstrips supply enough to raise nat gas prices significantly. Maybe I am missing something. XOM certainly should know it’s business.
supt at 65ish resist at 73 ish xom will out last BO and the gang for sure but patience may be the best approach for now . oil is still volatile and nat gas cheap.
A reminder to vote responsibly as it has a direct affect on your $ welfare.
I think XOM is a buy at 65.- or less. It has a trading range between 65 and 70.-
At the same time Devon’s sale makes me wonder about the prospects for Transocean. Those rigs are super expensive and this cuts deeply into possible profit margins when they may or may not find any oil.
Call me contrary, but last year I decided to buy into BP. i’m up over 40% AND the div is double that of XOM. Similar news also: deal with Devon. I think you will see that they are all trying to get into natural gas; XOM had a lot more cash at the right time, but I think they still have a lot ahead of them, as does BP.
Folks, there is one 800 pound gorilla in the room that keeps me from investing in XOM: politics.
There is a limit in the upside to Exxon’s success. If they get too profitable, especially when gas prices are going up, the politicians will drag their CEO to D.C., make a spectacle of him as they tar and feather him, and THEN possibly add a tax to Exxon’s profits.
Exxon is political kryptonite. Stay away.
Thanks people for your inputs.
Here it comes. Potash just raised guidance after hours, big pop in the share price…
I have been buying (and occasionally selling) XOM monthly in their DRIP program and have done very well over the years. I enrolled in the DRIP circa 1995 with a monthly investment varying between $200 – $400 and have withdrawn money to buy two new cars, pay for a couple of long travels (6 and 10 week to Asia and NZ), a down payment for a home, and a few other withdrawals. I plan to continue the DRIP for several more years.
XOM is one of those slow and steady companies where you love to look back every ten years or so and take a moment to roll around in the piles of money they made for you.
Are they a bargain today? Who knows.
I’d be cautious about starting a position in it now. It seems to me that XOM likes to be valued at a PE between 10 and 12, with a forward PE averaging a bit over 9. Currently XOM’s PE is close to 17 with a forward PE of almost 12. I think it’s a great company, pays a nice dividend, but considering the questions this rally is going to face in Q3 and Q4, I’m just not sure now is the best time to by.
buy buy buy,… full disclosure I am long, long, long XOM. Think you will be very happy you did in a year or two.
recap… they buy an unconventional nat gas company at the bottom the NG market… they build capital projects when no one else is and get cheap engineering, labor and materials… they are buying back shares, they have increased the divie every year for many years,… they are even playing the green public relations game by growing algae for renewable fuels… need I say more??
What do people think of starting a position in ExxonMobil at this time? I totally agree that ExxonMobil understands their future better then their competitors.
This is one of those business “no-brainers” I see occasionally, where I have to ask why the rest of the industry isn’t doing the same thing. With the price of natural gas running in the opposite direction from oil, why don’t the other oil companies see this?
Somewhere, an oil company CEO is doing his best Homer Simpson impersonation…