The recent uptick in natural gas prices will do nothing to change the No. 1 North American producer's decision about whether to raise some gas-directed rigs again, an ExxonMobil Corp. executive said Thursday.
Investor relations chief David Rosenthal, who usually helms quarterly conference calls, spent about an hour discussing quarterly and 2013 results with analysts. Many wondered whether the supermajor had plans to take a chance on gas production again, or whether it might consider hedging -- something it never does.
Last year all of its active gas rigs in the onshore were dropped to chase liquids. The turn to liquids-rich targets cut into gas production levels in 2013.
"We don't hedge oil and gas prices, and I wouldn't expect that to change," Rosenthal explained. "In terms of natural gas pricing, you have seen some firming here in the last several several weeks. We had very cold winter in the U.S., and the demand for gas in the power gen and heating has been very strong...
"We've seen a fluctuation on the upside for that. But we don't change our activity levels and investment plans to any significant extent on short-term price movements in the commodities."
Operations could be turned on a dime, however, because of the "tremendous flexibility" the producer has in the U.S. onshore, which is handled by subsidiary XTO Energy Inc., long a domestic onshore expert. XTO, bought in 2009, has provided ExxonMobil with a lot of its domestic leasehold inventory.
During the final period of 2013, ExxonMobil's U.S. arm produced 446,000 boe/d of oil, gas liquids, bitumen and synthetic oil. U.S. natural gas available for sale fell to 3.455 Bcf/d from 3.747 Bcf/d.
"I think our drill well inventory here in the U.S. is about 50,000 wells," said Rosenthal. "So we certainly have the capability to move our activity around. But again, we don't typically move dramatically one way or another on a short-term price spike or decline..."
The operator is making good progress in terms of productivity, well rates, downspacing, and optimizing drilling and completions. Determining the decline curve in some onshore gas wells, however, is difficult to determine, said Rosenthal.
Much of the time, the decline rate "depends on well work activity and workovers, and various other things. And a lot of that will be driven by the activity levels, which of course are dependent on longer-term price outlooks...
"From our perspective with the resources, the opportunities are there, we know all of these places, we know how to produce more gas, and when the market needs the gas you...we'll provide it. It's a market-driven activity...We do have the capability to adjust quickly if the market needs the gas."
Work progresses, however, on liquefied natural gas (LNG) projects in North America, with a heads of agreement recently signed with its partners and the state to export Alaska gas (see Daily GPI, Jan. 27; Jan. 16).
"If you look at the Alaska LNG opportunity for us, as you know it's one of many opportunities we are looking at across the globe for LNG...We have after a long evaluation process looking at locations...identified an industrial site as a lead site for the potential plant and terminal [and] we are looking at other sites."
Global LNG opportunities offer ExxonMobil a lot of future growth, said the investor relations chief. In addition to Papua New Guinea, Australia and Tanzania LNG proposals, ExxonMobil management is keen to advance a regas facility on the U.S. Gulf Coast. A lot of investment "is already in the ground, and we have the opportunity to add liquefaction capacity there..."
ExxonMobil also continues to pursue the possible viability of LNG exports from British Columbia, where it has a boatload of natural gas reserves. The export project would be one of many entries now being considered by other operators (see related story).
ExxonMobil recently received permit approval to build an estimated 30 million metric ton/year facility; it now is working on site selection, said Rosenthal. Together with the Alaska LNG proposal, there's a "huge resource, great opportunity, but again, like the other projects, they have very high capital costs and are very complex.
"It will be extremely important to have attractive, stable fiscal terms as it is in any area, but that’s also an opportunity for us..."
Rosenthal was asked for management's perspective on a Senate energy committee hearing convened in Washington, DC, Thursday morning to discuss exporting U.S. crude oil. The company has long been an advocate for North American LNG exports.
"As a company, we fully support free markets, free trade," Rosenthal said. "We oppose any barriers or restrictions to free trade and [support] open investment across the value chain in the energy sector...Over time, I think it's pretty clear that barriers to free trade can actually lead the higher prices, dampen economic growth and prosperity and in this case could potentially harm energy security by limiting diversity of supplies."
Free trade is the "best way," he said, to maximize the economic value of any enterprise, including the oil and gas industry, which "generates the most jobs, generates the most revenue to the taxing authorities...
"We would not advocate putting any restrictions at any point along manufacturing value chain, even if it might benefit some part of our business."
ExxonMobil also strongly supports unrestricted U.S. LNG exports, "even though we are a very large petrochemical company and consume a lot of petrochemical feedstock..." However, free trade offers a "level playing field for all competitors...Let the market do what it does best."
In part because the operator failed to offset declining production, including in U.S. gas fields, earnings were lower for the latest quarter. Shell also reported a big slip in earnings on Thursday.
Net profits in 4Q2013 fell 16% year/year to $8.35 billion ($1.91/share) from $9.95 billion ($2.20). Revenue dropped 3.3% to $111 billion. Cash flow dropped to $10.2 billion from $13.2 billion. For 2013, earnings from 2012 plunged 27% to $32.58 billion ($7.37/share) from $44.49 billion ($9.70).
Capital and exploration spending was down 20% to $9.9 billion, while it rose 7% on the year to $42.49 billion.
U.S. upstream earnings totaled $1.19 billion in 4Q2013, versus $1.60 billion in 4Q2012. For the year, U.S. upstream netted $4.19 billion, up from 2012's $3.93 billion.
Natural gas production worldwide was lower at 11.836 Bcf/d, a loss of around 486,000 Mcf/d from 2012. Excluding the impacts of entitlement volumes and divestments, output fell 1.5% on field declines.