Bringing oil and gas giants Exxon and Mobil Corp. together lastyear has gone more smoothly than management anticipated, pushingearnings to record levels, and management said last week it willuse that extra money for new projects, more research and moretechnology to improve the bottom line in the years to come.

Along with the other good news for investors, ExxonMobilannounced it will buy back stock, and though it did not disclosedetails, analysts predicted the company could repurchase as much as7% of its shares outstanding in the next five years at a cost ofabout $20 billion.

It was all CEO Lee Raymond’s show at the second-quarter meeting,as he spoke at length with investors and the media about thecompany’s present state and future plans. Calling the merger”essentially complete,” he said it has gone faster than he expectedwhen the $80 billion deal was first announced (see NGI, Dec. 7,1998). By 2002, the new company plans to cut 19,000 jobs — 3,000more than first expected, or about 15% of its 1998 workforce of123,000. All told, the company expects the merger-related savingsto add $1.6 billion to net income this year, $1.9 billion in 2001and $3 billion in 2002.

What has helped smooth the path has been the synergies betweenExxon and Mobil, Raymond explained. Technology, similar projectsand a similar philosophy have spurred growth and eliminatedproblems quickly.

“Our early success is a tribute to our employees, who havereacted with great enthusiasm and creativity,” Raymond toldinvestors. “It is through their exceptional efforts that all ofthis has happened faster and on a larger scale than we predicted.”

Reviewing all of the company’s operations worldwide, Raymondsaid that the success of the upstream division will build on thelarge inventory of development projects. The projects, some ofwhich date back to the 1970s, are worldwide, with a “key growtharea” in North America, especially Alaska’s North Slope, Canada’sMackenzie Delta, offshore eastern Canada and in the deepwater Gulfof Mexico.

More than $11 billion will be spent on oil and gas explorationworldwide this year, and the company plans to spend another $13billion in the next four years. Even though oil and gas prices areincreasing, Raymond said the long-term spending will go more slowlybecause most of the anticipated projects are long-term.

“We have an unparalleled inventory of gas resources in key areasworldwide, including 57 Tcf of proven reserves and over 180 Tcf oftotal discovered resources,” Raymond said. “Our commercializationcapabilities encompass both our depth of marketing experiencearound the world and also our expanding portfolio of gasdevelopment technologies, including LNG, gas-to-liquids and highstrength steels.”

Raymond said that the company’s “leading research program” ispoised to deliver technology to “significantly reduce the cost ofdelivering gas to markets.” ExxonMobil has pipeline and LNG salesin more than 25 countries. He said that the company’s combinedhistory provides an “excellent foundation for the future we see inthe natural gas business.”

As the demand for natural gas expands, “we see our activitiesgrowing substantially” in both traditional markets and “newlyemerging markets,” Raymond told investors. “Growth will occur inboth pipeline and LNG markets and longer term, we expect gasliquids technology applications for large projects. Leading edgetechnology will be more important than ever in commercializing gasresources in area with limited regional market potential.”

ExxonMobil has a “large number of significant natural gasprojects” that will be developed in the coming years, said Raymond.

The inventory consists of three types of projects either in theimplementing, designing or planning stage. Currently, ExxonMobilhas about 30 large oil and gas projects in the implementationstage, which are expected to develop about 3.5 billion boe ofresources at a cost of $10.5 billion, and provide an aggregate netpeak production of about 750,000 boe/d.

Another 20 large projects are in the design stage, projects forwhich the company has begun front-end engineering design work.These projects are expected to develop more than 4.5 billion boefor a total cost of $12.5 billion, and provide an aggregate netpeak production rate of more than 900,000 boe/d.

About 50 projects fall into the planning stage, and are nowbeing assessed and appraised. In this stage, the company estimatesoil and gas resources at about 6.5 billion net boe to be developedat a cost of $22 billion. These future projects could provide anaggregate net peak production rate of more than 1.3 billion boe/d.

“This (total) inventory of large projects is expected tocontribute to a decade of profitable growth,” Raymond said,contributing about 70% of ExxonMobil’s current rate of production.Many smaller projects also are ongoing and being developed inexisting fields that will also provide a significant contribution,he added. Of course, the projects in hand don’t include anticipatedacquisitions, and Raymond said those are expected in the next fewyears also.

In the first half of this year, ExxonMobil has grown liquids andgas volumes by 2.2% over 1999 despite lower volume entitlements insome countries because of the higher prices. “This growth is theresult of a number of new project startups in 1999 and 2000.”

Over the next several years, the growing volume for new projectsis “almost totally” based on discoveries already made, saidRaymond. Taking a conservative view, “we expect to profitably growin liquids and natural gas volumes to about 3% per year,” but hesaid he suspected it would not be a “smooth, linear” growth.

Carolyn Davis, Houston

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