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ExxonMobil Plans to Increase Production & Technology

ExxonMobil Plans to Increase Production & Technology

Bringing oil and gas giants Exxon and Mobil Corp. together last year has gone more smoothly than management anticipated, pushing earnings to record levels, and management said last week it will use that extra money for new projects, more research and more technology to improve the bottom line in the years to come.

Along with the other good news for investors, ExxonMobil announced it will buy back stock, and though it did not disclose details, analysts predicted the company could repurchase as much as 7% of its shares outstanding in the next five years at a cost of about $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 the company's present state and future plans. Calling the merger "essentially complete," he said it has gone faster than he expected when the $80 billion deal was first announced (see NGI, Dec. 7, 1998). By 2002, the new company plans to cut 19,000 jobs --- 3,000 more than first expected, or about 15% of its 1998 workforce of 123,000. All told, the company expects the merger-related savings to add $1.6 billion to net income this year, $1.9 billion in 2001 and $3 billion in 2002.

What has helped smooth the path has been the synergies between Exxon and Mobil, Raymond explained. Technology, similar projects and a similar philosophy have spurred growth and eliminated problems quickly.

"Our early success is a tribute to our employees, who have reacted with great enthusiasm and creativity," Raymond told investors. "It is through their exceptional efforts that all of this has happened faster and on a larger scale than we predicted."

Reviewing all of the company's operations worldwide, Raymond said that the success of the upstream division will build on the large inventory of development projects. The projects, some of which date back to the 1970s, are worldwide, with a "key growth area" in North America, especially Alaska's North Slope, Canada's Mackenzie Delta, offshore eastern Canada and in the deepwater Gulf of Mexico.

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

"We have an unparalleled inventory of gas resources in key areas worldwide, including 57 Tcf of proven reserves and over 180 Tcf of total discovered resources," Raymond said. "Our commercialization capabilities encompass both our depth of marketing experience around the world and also our expanding portfolio of gas development technologies, including LNG, gas-to-liquids and high strength steels."

Raymond said that the company's "leading research program" is poised to deliver technology to "significantly reduce the cost of delivering gas to markets." ExxonMobil has pipeline and LNG sales in more than 25 countries. He said that the company's combined history provides an "excellent foundation for the future we see in the natural gas business."

As the demand for natural gas expands, "we see our activities growing substantially" in both traditional markets and "newly emerging markets," Raymond told investors. "Growth will occur in both pipeline and LNG markets and longer term, we expect gas liquids technology applications for large projects. Leading edge technology will be more important than ever in commercializing gas resources in area with limited regional market potential."

ExxonMobil has a "large number of significant natural gas projects" that will be developed in the coming years, said Raymond.

The inventory consists of three types of projects either in the implementing, designing or planning stage. Currently, ExxonMobil has about 30 large oil and gas projects in the implementation stage, which are expected to develop about 3.5 billion boe of resources at a cost of $10.5 billion, and provide an aggregate net peak production of about 750,000 boe/d.

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

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

"This (total) inventory of large projects is expected to contribute 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 in existing fields that will also provide a significant contribution, he added. Of course, the projects in hand don't include anticipated acquisitions, and Raymond said those are expected in the next few years also.

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

Over the next several years, the growing volume for new projects is "almost totally" based on discoveries already made, said Raymond. Taking a conservative view, "we expect to profitably grow in liquids and natural gas volumes to about 3% per year," but he said he suspected it would not be a "smooth, linear" growth.

Carolyn Davis, Houston

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