Replies to post #448 on The Rising Influence of Rising Affluence

[DewDiligence]

Slimmer Devon Could Set Exxon Salivating

[I don’t think I agree with the author’s premise, and I’d like to hear the opinions of readers of this message board. The Barron’s feature on XOM in #msg-43578073 is a necessary prerequisite!]

http://www.forbes.com/2009/11/16/devon-shale-gas-business-energy-exxon.html

›by Christopher Helman
11.16.09, 3:57 PM ET

"I guess I was like Pavlov's dog," said Devon Energy Chief Executive Larry Nichols.

It was Q&A time during Monday morning's conference call. Nichols had laid out the rationale for Devon Energy to sell all of its offshore and international oil and gas fields. The streamlining will make Devon faster growing and more profitable, focusing it on burgeoning U.S. natural gas shale plays.

An analyst asked for Nichols' thoughts on whether the move would make Devon more of an acquisition target. Nichols misheard him, and said he saw little reason for Devon to buy anybody else because "we don't want to take any cash away from opportunities." The new Devon, he said, would have "an overabundance of opportunities."

It was a telling moment. After realizing his error, Nichols likened himself to the famous dog trained by behavioral scientist Ivan Pavlov to salivate whenever he heard a bell ring [LOL]. For the last decade it has always been Devon doing the acquiring, snapping up deepwater Gulf of Mexico projects, Brazilian offshore wildcats, a piece of a megafield in Azerbaijan, even some fields in China. Now Devon aims to sell all those underappreciated morsels, hoping to net $5.5 billion after tax.

Has Nichols come to terms with the idea that Devon's days as an acquirer are likely numbered?

The very reasons that he gave for why Devon wouldn't be looking to buy anyone are the same reasons that make Devon a scrumptious morsel for the likes of ExxonMobil, BP or Royal Dutch Shell. Exxon, more than the others, has focused internationally in recent years, leaving the onshore oil and gas basins of the U.S. to independents like Devon, XTO Energy, Chesapeake Energy and others. Now that it's getting ever harder to convince tightfisted OPEC nations to open their fields to development, and nearly impossible to grow oil and gas production volumes, it's likely that the giants will return to the U.S. [But US NG prices are not exactly at “salivating” levels.]

Devon, with a $30 billion market cap, is too big for all but the giants to take on. What would they get? Proven reserves of 2.8 billion barrels (split roughly 40/60 between oil and natural gas) and probable reserves of 12 billion barrels. The goodies are spread among some of North America's most promising basins: the Barnett shale around Fort Worth, Texas, the Haynesville shale of Louisiana, the Arkoma, the Cana, etc.

Then there's the Horn River Basin of British Columbia, Canada. Devon sees its acreage in this shale gas play ramping up from no current production to more than 350 million cubic feet a day by the end of 2014.

In July, ExxonMobil announced that it had leased 250,000 acres in the Horn River. In an interview with Forbes, Chief Executive Rex Tillerson said that although the Horn River was farther from market than many U.S. shales, it was "as rich as, if not better than the Barnett shale."

It would make sense for ExxonMobil to buy Devon. [XOM can clearly afford it, but would buying DVN meet XOM’s lofty threshold for RoIC (#msg-43578073)? I rather doubt it.] Not just for Horn River. Exxon has missed the U.S. shale gas boat, and spent the last decade using its massive balance sheet to build megaprojects in far-flung spots like Russia, Africa and Qatar. Exxon doesn't need Devon's international assets. Exxon has only a third of its reserves in the Americas, and just a tiny sliver in unconventional gas plays. The energy giant needs growth, and Devon has it. [But XOM’s management has never been known to buy growth for growth’s sake.]

Nichols' presentation Monday morning boasted that Devon last year replaced each barrel of oil it produced with nearly three new ones it found in the ground. Since 2006, Devon has logged 9% compound annual growth from its onshore assets (versus a compound loss of 3% a year from the international and offshore assets it's selling). Devon thinks it can achieve 10% compound growth through 2014 if oil and gas prices remain favorable. Devon's track record in shale is indisputable. Since 2004 it has reduced the days required to drill a shale well from 33 to 15.

What's more, onshore U.S. growth is cheaper. Despite contributing just 12% of Devon's production volumes, the offshore and international fields sucked up 30% of the company's $4.1 billion in capital investment this year. It simply costs more to get oil and gas out of deepwater wells [duh].

With a mind-boggling 27,500 potential drilling locations onshore, Devon has years of growth ahead. Exxon's cash will speed the plow. If Nichols is Pavlov's Dog, Exxon's Tillerson might be getting ready to ring the bell.‹

[DewDiligence]

XOM to Acquire XTO in All-Stock Deal

[The deal has a nominal value of $31B in stock plus $10B for the assumption of XTO’s debt. It increases XOM’s shares outstanding by about 9% and does not have a collar. CC today at 11am ET.]

http://finance.yahoo.com/news/Exxon-Mobil-Corporation-and-bw-3635308765.html?x=0&.v=1

›8:09 am EST, Monday December 14, 2009

IRVING, Texas--(BUSINESS WIRE)--Exxon Mobil Corporation (NYSE: XOM - News) and XTO Energy Inc. announced today an all-stock transaction valued at $41 billion. The agreement, which is subject to XTO stockholder approval and regulatory clearance, will enhance ExxonMobil’s position in the development of unconventional natural gas and oil resources.

Under the terms of the agreement, approved by the boards of directors of both companies, ExxonMobil has agreed to issue 0.7098 common shares for each common share of XTO. This represents a 25 percent premium to XTO stockholders. The transaction value includes $10 billion of existing XTO debt and is based on the closing share prices of ExxonMobil and XTO on December 11, 2009.

“We are pleased that ExxonMobil and XTO have reached this agreement,” said Rex W. Tillerson, chairman and chief executive officer of Exxon Mobil Corporation.

“XTO is a leading U.S. unconventional natural gas producer, with an outstanding resource base, strong technical expertise and highly skilled employees. XTO’s strengths, together with ExxonMobil’s advanced R&D and operational capabilities, global scale and financial capacity, should enable development of additional supplies of unconventional oil and gas resources, benefiting consumers both here in the United States and around the world.”

Tillerson said the agreement is good news for the United States economy and energy security, as it will enhance opportunities for job creation and investment in the production of America’s own clean-burning natural gas resources.

XTO’s resource base is the equivalent of 45 trillion cubic feet of gas and includes shale gas, tight gas, coal bed methane and shale oil. These will complement ExxonMobil’s holdings in the United States, Canada, Germany, Poland, Hungary and Argentina.

Following the transaction closing, ExxonMobil intends to establish a new upstream organization to manage global development and production of unconventional resources, enabling the rapid development and deployment of technologies and operating practices to increase production and maximize resource value. The new organization will be located in Fort Worth, Texas, in XTO’s current offices.

Bob R. Simpson, chairman and founder of XTO, said that over the company’s 23-year history, XTO has developed technical expertise and has assembled a substantial, high-quality and diverse resource base in producing basins across the United States.

“XTO has a proven ability to profitably and consistently grow production and reserves in unconventional resources,” said Simpson. “As the world’s leading energy company, ExxonMobil will build on our success and open new opportunities for the development of natural gas and oil resources on a global basis.”

Tillerson said the agreement is part of an ongoing, disciplined evaluation of timely investment opportunities to create value for shareholders, and to help meet long-term global energy demand growth. The agreement is consistent with ExxonMobil’s business model which is focused on sustainable, long-term value creation.

Completion of the transaction is expected in the second quarter of 2010. In connection with the transaction, J.P. Morgan Securities Inc. are acting as financial advisors to ExxonMobil and Barclays Capital Inc. and Jefferies & Company Inc. are acting as financial advisors to XTO.

Media Conference Call Information

ExxonMobil and XTO will be conducting a media conference call on Monday, December 14, 2009 at 9 a.m. Eastern time (8 a.m. Central).

Participant Numbers
Domestic: 866-719-0110
International: 719-325-2212
Confirmation Code: 8522824

Analyst Conference Call Information

ExxonMobil will be conducting an analyst conference call on Monday, December 14, 2009 at 11 a.m. Eastern time (10 a.m. Central) to discuss the transaction (URL will be available at www.exxonmobil.com).

The slides to be discussed during the call will be available on exxonmobil.com for viewing and download starting at 10:45 a.m. Eastern time (9:45 a.m. Central).

Audio Webcast Participation

Listen Only Numbers:
Domestic: 877-208-2391
International: 816-581-1736
Confirmation Code: 4605791

Replay telephone numbers:
888-203-1112 or 719-457-0820
Confirmation Code: 4605791

Replay available starting at 5 p.m. Eastern (4 p.m. Central), and running through December 21 at Midnight.

About ExxonMobil

ExxonMobil, the largest publicly traded international oil and gas company, uses technology and innovation to help meet the world’s growing energy needs. ExxonMobil holds an industry-leading inventory of resources, is the largest refiner and marketer of petroleum products, and its chemical company is one of the largest in the world. For more information, visit www.exxonmobil.com.

About XTO

XTO is a domestic oil and natural gas producer engaged in the acquisition, exploitation and development of quality, long-lived oil and natural gas properties in the United States. Its properties are concentrated in Texas, New Mexico, North Dakota, Pennsylvania, West Virginia, Arkansas, Oklahoma, Kansas, Wyoming, Colorado, Utah, Louisiana and Montana. For more information, visit www.xtoenergy.com.‹

[DewDiligence]

XOM Revives Old Field With CH4-N2 Separation

http://www.dallasnews.com/sharedcontent/dws/bus/y!finance/exxon/stories/011310dnbusexxon.3cf7cdf.html

›01:06 AM CST on Wednesday, January 13, 2010
By ELIZABETH SOUDER

Exxon Mobil Corp. plans to spend $340 million to boost production of one of Texas' oldest oil fields.

The Irving oil giant will add technology to extend the life of Hawkins Field in East Texas by 25 years and to draw 40 million more barrels of oil from the reservoir. Exxon has been producing oil at the field near Tyler for 70 years, since the company was known as Humble Oil.

The investment is an example of Exxon's return to Texas and its attention to regions of the world with stable governments.

"We've been operating many, many fields for 60, 70 years. We've got wells that go back to the 1930s. That's a very long-held commitment to the state," said Stu Jeffries, Exxon's production manager for Texas.

He said the investment, which Exxon will announce today, is "a good indication of our confidence that we've got an ongoing operation that continues to be important."

New technology could help Exxon and its peers produce more oil and gas from existing fields, rather than spending even more money on new, exotic locations. Many oil companies across the state are trying out various technologies to revive aging fields.

Exxon's new technology will allow the company to reuse nitrogen that it injects into oil wells to push more oil and natural gas to the surface.

The company already injects nitrogen culled from the air into the Hawkins wells. But the nitrogen mixes with the natural gas, making it difficult and sometimes impossible to sell the gas.

Exxon plans to build a new facility to separate the nitrogen from the natural gas when it comes out of the well. Exxon can then sell more of the natural gas and reinject the nitrogen underground.

Exxon plans to begin construction in the first quarter and to start using the equipment in late 2011.

"You may be able to increase the recovery quite a few percentage points compared with the overall investment in the field. It's a pretty high return on investment, and it's a pretty safe investment compared with maybe spending $340 million somewhere else in the world," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University.

For example, Exxon is reportedly negotiating to buy a stake in an offshore field in Ghana, but the government is leaning toward a sale to China's National Offshore Oil Corp. Several years ago, Exxon walked away from its investment in a large oil field in Venezuela after the government changed the terms of its oil deals.

"Given the issues that the industry faces concerning access to new upstream opportunities, whether it's because of more competition from other players around the world or environmental restrictions or what have you," turning to old fields makes sense, said James Burkhard, an oil analyst for IHS Cambridge Energy Research Associates Inc.

Last year, Exxon expanded its operations in Colorado, where the company has been drilling for natural gas for decades. And last month, Exxon announced a deal to buy XTO Energy, a domestic natural gas producer with large operations in the North Texas Barnett Shale field.

The $340 million investment in East Texas is small for Exxon, which spent $26 billion on capital projects last year. And the East Texas plans are tiny considering the $41 billion Exxon will spend on XTO.

But the Hawkins plans are significant compared with the $700 million Exxon has spent in Texas for the past three years combined.

Vinson & Elkins energy expert Steve Davis said the investment represents an experiment for Exxon.

If it works, the company can potentially apply the technology to other fields.

"This is $340 million. It's nothing to these guys," he said, but added: "Their investment criteria are so stringent, that I would think there's a high likelihood of success."

Vinson & Elkins partner Mark Spradling pointed out that despite years of oil production in Texas, about a third of the original oil is still in the ground.

While the Hawkins field has already yielded more than 800 million barrels of oil, Exxon thinks it can squeeze out at least 40 million more.‹

[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.‹