Here's another take on the Exxon report. Sorry, no link.
John
HOUSTON—Exxon Mobil Corp., the world's largest publicly traded oil company, is
struggling to find more oil.
In its closely watched annual financial report released Tuesday, the company
said that for every 100 barrels it has pumped out of the earth over the past
decade, it has replaced only 95.
It's a conundrum shared by most of the other large Western oil-producing
companies, which are finding most accessible oil fields were tapped long ago,
while promising new regions are proving technologically and politically
challenging.
Exxon said in the report that it more than made up for the shortfall in oil by
stocking up on natural gas, mostly through its acquisition of XTO Energy Inc.
last year.
But the shift toward gas is troubling some investors, because gas sells for less
than the equivalent amount of oil. Many observers feel the move toward gas—a
trend across the oil industry—is dictated more by shrinking access to oil fields
than by a strong desire to emphasize gas production.
"The good old days are gone and not to be repeated," says Fadel Gheit, an
analyst with Oppenheimer and Co. Bringing additional reserves from gas "is not
going to give you the same punch" that oil would, he said.
Finding the equivalent, in either oil or natural gas, of a barrel in the earth
for every one the company produces—a 100% reserve replacement rate—has become
extraordinarily tough. Exxon boasted this was the 17th consecutive year of
hitting this mark, but analysts agree that without the XTO deal, Exxon would
have fallen far short this year.
Investors look at these reserve figures as an important gauge of future
profitability and business strength.
Exxon now has more natural gas in reserve for future production than oil. And
while the company has been very successful at finding or buying new natural gas,
it has struggled to do the same with oil. For every 100 cubic feet of gas it has
extracted , it has found or bought an additional 158.
Company spokesman Alan Jeffers says the company's "focus is on resources and
projects that add shareholder value." That can be accomplished by finding oil,
he says, but value can also be delivered through a corporate acquisition.
Exxon has become the largest U.S. company by market capitalization with a
business model that stresses size and integration of assets. It has
traditionally found crude oil, refined it into gasoline and other fuels and then
sold these products.
But the stock market has recently favored oil companies, such as ConocoPhillips,
that are shedding assets to get smaller. Smaller oil and gas finds can have a
material impact on slimmed down companies.
The shift toward gas—and troubles with finding oil—has emerged as a theme for
the giant Western oil companies. Royal Dutch Shell PLC's chief executive said
last month the European company will produce more gas than oil next year for the
first time in its 104-year history.
[EXXON]
In the past few years, new technologies have unlocked vast resources of natural
gas, depressing prices in North America and raising the possibility of falling
prices in other regions also. Meanwhile, growing demand from emerging economies
has sent crude-oil prices up strongly since prices cratered in 2008 during the
worst of the recession. Natural gas prices closed today at $3.98 per million
British thermal units, down 25% from a year ago, whereas a barrel of West Texas
crude is up about 9.5% over that time, closing at $84.32 in trading on the NYMEX
Tuesday.
Big oil companies are having trouble cashing in on the strong prices for crude
oil. They have limited ability to drill in many oil-prone regions, such as
Russia and part of the Middle East, due to politics. And even in promising Iraq,
where many Western companies have won contracts, much infrastructure must be
rebuilt. Exxon and others have also flocked to the oil-rich sands of Northern
Alberta, Canada, but digging out the oil across vast swathes of forest comes at
relatively high cost and generates concerns about the environmental impact.
One place where Western oil companies have found open doors is in deep-water
exploration, because state-backed oil companies in Russia, China and the Middle
East have little experience drilling these tricky wells. This has given Western
companies access to new opportunities, such as Exxon's recent deal with Russian
oil giant OAO Rosneft to explore the Black Sea.
The hunt for oil explains why these companies are so keen to restart work in the
Gulf of Mexico, after a halt imposed by the Obama administration following the
Deepwater Horizon spill. Some companies also are seeking permission to drill
exploratory wells above the Arctic Circle. The Arctic remains one of the few
unexplored regions of the world and the region above Alaska and western Canada
is believed to be oil rich.
But deep-water projects take a long time to turn from a prospect that a
geologist has identified into a producing asset. Chevron Corp.'s chief executive
said last week that he expects to add new barrels of oil to its reserves from
"several major deep-water projects" in future years. In 2010, he warned that
Chevron added only one new barrel for every four it produced.
Given the difficulties these companies are facing, some investors have begun to
wonder if Exxon bought XTO last year to "mask the extent of their replacement
problem," said R. Blair Thomas, chief executive of EIG Global Energy Partners,
an energy asset -management firm.
The market didn't like Exxon's announcement, sending the bellwether stock down
2.3% to $82.97 in 4 p.m. trading Tuesday on the New York Stock Exchange.
Write to Russell Gold at russell.gold@... and Angel Gonzalez at
angel.gonzalez@...
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