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
"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
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
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
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