The Rising Influence of Rising Affluence

[DewDiligence]

In 2009, Exxon Grew While Oil Industry Contracted

[4Q09 total production of oil and NG was 4.18M boed, +1.6% year-over-year; this comprises about 5% of the worldwide total from all sources. (XOM’s 4Q09 production was +13.5% quarter-over-quarter, but the second are third quarters are seasonally low in NG production.) 4Q09 production consisted of 57% oil/condensates and 43% NG, but the YoY production increase was entirely attributable to NG, which was up 8.8% (due to expansion in Qatar) while oil production was down 3.2%. The US accounted for 16% of oil production and 12% of NG production in the quarter.

None of the above figures include XTO.

4Q09 cap-ex was $8.3B, the highest quarterly figure in XOM’s history. Cap-ex during the next few years is expected to average $25-30B per year, which is exceeded only by the mammoth amount being spent by Shell to get its house in order.

During 4Q09, XOM used $2.0B (net of purchases to offset expansion from options and stock-based compensation) to repurchase its own shares, but this is a token expenditure for a company of XOM’s size and it merely reduced the shares outstanding by 0.4%. Share repurchases are expected to continue at ~$2B in 1Q10.]

http://www.nytimes.com/2010/02/02/business/02oil.html

›February 2, 2010
By JAD MOUAWAD

While much of the oil industry contracted last year, Exxon Mobil expanded its oil and gas operations in the United States and around the world.

Exxon, the top Western oil company, took advantage of the weak climate to bolster its operations, buying smaller rivals and attractive assets as it sought to lay the foundation for growth once the economy rebounds.

In December, it announced the $31 billion purchase of XTO Energy, a leader in natural gas production in the United States. It gained a major foothold in Iraq, the holder of the third-biggest proven oil reserves after Saudi Arabia and Iran. In Africa, it bid $4 billion for a major field off Ghana [the Ghana deal with Kosmos may have fallen through, however]. It approved a multibillion-dollar project in Papua New Guinea to export gas to China and Japan.

The plan follows Exxon’s longstanding strategy of investing during market declines. Because of its substantial cash reserves, the company spent a record $27.1 billion on its exploration and development programs last year, a 4 percent increase from 2008.

While most of its big rivals have been restructuring and cutting expenses, Exxon has repeatedly said that it would stick with plans to spend $25 billion to $30 billion a year over the next few years to develop new supplies.

Still, like most major oil companies, Exxon was hurt by lower oil prices, and a drop in demand for oil and refined fuels as consumers cut spending and businesses shed jobs.

In the fourth quarter, Exxon Mobil’s profit dropped 23 percent, to $6.05 billion, or $1.27 a share, compared with $7.82 billion, or $1.54 a share, in the period a year ago. The earnings, however, beat analysts’ expectations, helping drive up shares, which rose 2.72 percent on Monday, to $66.18.

Revenue was up 6 percent, to $89.84 billion in the quarter.

“The industry trends in 2009 reflect a challenging environment over all,” the company’s vice president for investor relations, David Rosenthal, said during a conference call. “Certainly a tough year. Tough for everyone. But we feel our competitive strengths have helped us a bit.”

In 2008, Exxon became the world’s most profitable corporation with earnings over $45 billion as oil averaged $100 a barrel. Last year, its profit dropped 57 percent, to $19.28 billion. The company was also displaced by PetroChina as the world’s largest publicly traded company by market value, according to yearly rankings by PFC Energy, a consulting firm.

Oil prices, which collapsed when the financial crisis began, have since regained ground and settled above $74 a barrel on Monday in New York.

Exxon’s oil production averaged 2.39 million barrels a day in 2009, essentially flat from 2008 as lower output from mature fields was offset by increases from new projects in Qatar. Gas production grew 2 percent and averaged 9.3 billion cubic feet a day.

The plans to buy XTO, which are subject to approval, reflected Exxon’s enthusiasm for unconventional gas resources, where reserves have swelled because of innovations in producing gas from a type of rock called shale. The estimated reserves in the United States are now expected to last more than 100 years at current consumption rates.

Exxon has been building a global portfolio of shale reserves in the United States, Germany, Hungary and Canada in recent years. It hopes that XTO’s drilling expertise will help it expand its gas production rapidly.

Exxon was also the first American company to gain access to Iraq’s oil fields after winning the bidding for the West Qurna Phase 1 field with Royal Dutch Shell. The companies pledged to increase the field’s output to 2.325 million barrels a day, up from 279,000 barrels a day.

Few countries offer oil companies as much potential growth as Iraq does. That explains why foreign companies, which initially complained about the Iraqi government’s onerous terms, have all agreed to slash their profits in exchange for access to the country’s reserves.

Exxon beat a group led by the Russian giant Lukoil that included ConocoPhillips, and another led by the China National Petroleum Corporation. It will receive $1.90 for each barrel of extra production from the field, less than half of the $4 a barrel that Exxon had originally bid. The field holds 8.7 billion barrels in proven oil reserves.‹