ExxonMobil Corp. is keeping its eye on natural gas and oil market forecasts to 2040, not volatile commodity prices, which means it plans to keep a lookout for opportunities, even when profits are low, investor relations chief Jeff Woodbury said Monday.
The supermajor has reduced its share buyback program by half, the only hint of any sort of pullback in light of slumping oil prices. Capital expenditure plans and the strategy outlook won't be released until March 4, and Woodbury was hesitant about offering details about ExxonMobil's near-term plans in North America.
"Our investment program is driven by a long-term projection, not an overreaction to the market," Woodbury said. ExxonMobil is "mindful" of prices, but its eye is on "overall supply and demand projections," updated every year. The annual Outlook for Energy, the latest issued in December, forecast oil demand to grow at a rate of 0.8% a year through 2040, with natural gas demand growing by 1.6% a year (see Daily GPI, Dec. 9, 2014). Supplies are expected to soar, with North American gas production expected to grow by about 75% to around 140 Bcf/d, a good sign for North America's largest gas producer.
The company has its fingers in all types of energy investments, including liquefied natural gas (LNG) projects. One LNG export project in Papau New Guinea ramped up last year. Because LNG often is linked to oil prices, Woodbury was asked about whether any of the proposals on the table, including in North America, were in jeopardy. Last week, Royal Dutch Shell plc and Chevron Corp. executives said prospects for some greenfield LNG exports were not probable at today's prices.
ExxonMobil sees gas demand long-term growing, and "that provides the business case for LNG projects," said Woodbury. "Broadly speaking, they are a key component of our portfolio and an important part of generation. As we see demand growth, we expect to see supply to grow...However, these are capital-intensive projects, and we want to ensure we have a sufficient price in place. We have got a number of projects in place across our global portfolio that are positioned to go ahead and complete in that demand profile."
It's the same story in North America's onshore. ExxonMobil eschewed onshore gas exploration two years ago as prices declined to focus on its unconventional liquids and deepwater offshore opportunities. Once gas prices give the signal, ramping up onshore exploration could come quickly, Woodbury said.
However, liquids production hasn't slowed down, and in fact, contrary to other U.S. producers, ExxonMobil actually raised its onshore oil rig count sequentially during 4Q2014, to 44 from 39.
Specifically, rigs were added in the Bakken and Woodford shales, and the Permian Basin. It also increased liquids production from the trio, considered the cornerstone today of ExxonMobil's unconventional drilling program.
Since he wasn't able to offer many details about the go-ahead strategy, Woodbury was asked to comment about whether ExxonMobil might be scouting for opportunities, particularly from debt-laden producers unable to find financing for their programs. He hinted that subsidiary XTO Energy Inc., has seen huge benefits from bolt-on acquisitions over the past couple of years. XTO oversees ExxonMobil's unconventional program.
In any case, "we stay very alert to the value proposition, watchful where we can capture opportunities to high-grade our portfolio, whether it be oil, whether it be gas, whether onshore or offshore," Woodbury said. "The real focus here is creating value. And we'll pursue only those acquisitions that we think that have ultimate strategic value and are accretive to our longer term returns."
High on the list of possible targets would be proved reserves not yet developed.
Potential assets "have to have a very significant component of development potential, where we can apply our resource capability/expertise...our proprietary technology and our strong balance sheet...We don't want something that's already on decline and doesn't have potential. We're really looking for something that can upgrade our overall portfolio and add future potential."
ExxonMobil doesn't plan to "forgo any attractive opportunities. We have a significant debt capacity, but we will maintain our financial flexibility and we’ll assess the cash and our funding options under a range of outcomes to take a balanced approach to meet those obligations."
U.S. natural gas production fell to 3.371 MMcf/d net in 4Q2014 from 3.41 MMcf/d sequentially and 3.455 MMcf/d in the year-ago period. Canada/South America gas output declined to 320 Mcf/d from 272 Mcf/d sequentially and from year-ago production of 365 Mcf/d. U.S. net oil production in 4Q2014 increased to 473,000 b/d from 442,000 b/d in 3Q2014 and 446,000 b/d in 4Q2013. Canadian oil output rose sequentially to 312,000 b/d from 295,000 b/d, but it was down from year-ago output of 320,000 b/d.
In 4Q2014, averaged realized U.S. gas prices were $3.72/Mcf, versus $3.93 sequentially and $3.42 in 4Q2013. U.S. crude prices averaged $63.30/bbl in the final quarter from $89.60 in 3Q2014 and $91.75 in 4Q2014.
Quarterly profits plunged to $6.57 billion ($1.56/share) from year-ago earnings of $8.35 billion ($1.91). It was the lowest quarterly profit report since the first quarter of 2010 when it earned $6.3 billion ($1.33/share), but the latest report still trumped Wall Street's forecasts.
However, by comparison, the latest quarterly report was low by comparison with all of last year. During 2014, ExxonMobil earned $9.1 billion ($2.10) in 1Q2014; $8.78 billion ($2.05) in 2Q2014; and $8.07 billion ($1.89) in 3Q2014. Its lowest earnings period in 2013 was the second quarter, when profits totaled $6.86 billion ($1.55/share).
For 2014, ExxonMobil earned $32.52 billion ($7.60/share), nearly flat from year-ago profits of $32.58 billion ($7.37). In 2012 the Irving, TX-based operator's profits hit $44.88 billion ($9.70/share), while in 2011 profits were $41.06 billion ($8.43).