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ExxonMobil Readies First Phase of Piceance Gas Project

ExxonMobil Corp. is taking the "long-term view through the cycle" and won't back down from plans to spend between $25 billion and $30 billion annually over the next five years, CEO Rex Tillerson said Thursday. High on the priority list is North American unconventional natural gas, and by the end of this month the company expects to ramp up phase one of its Piceance Basin project in Colorado.

Tillerson and his management team laid out their upcoming plans for financial analysts at the company's annual meeting in New York City. Despite the global recession, the Irving, TX-based producer plans to ramp up nine projects this year, weighted heavily to natural gas. ExxonMobil spent $26 billion last year, and Tillerson said the company doesn't plan to back down from its long-term projects anytime soon.

"ExxonMobil takes the long-term view on investment decisions," Tillerson said. "Last year we made major investments in new projects and increased our exploration activity...We expect 2009 to increase relative to 2008 as we progress on the new developments, and we plan to drill multiple new wells. We have the financial strength to continue to invest in attractive projects," most of which will be ready "by 2012 and beyond."

Most of the projects now in the works are to produce more liquefied natural gas, especially in Qatar. However, North America has several select gas projects that are in development or nearing completion.

"Gas will begin flowing from the first phase of our Piceance Basin project in Colorado by the end of March," Tillerson said. The 300,000-acre development in northwestern Colorado was announced in September 2007 (see NGI, Sept. 10, 2007). At its peak, the Piceance project is expected to 1 Bcf/d; ExxonMobil was producing 55 MMcf/d in the Piceance in 2007.

"Piceance Phase 1 will flow 200 MMcf/d of tight gas," Tillerson said. "We're using proprietary technology, and we think we are in the sweet spot of the basin."

ExxonMobil engineers estimate that the basin may have a reserve potential of "45 Tcf of gross resources," Tillerson said. Although producers are laying down gas rigs across North America -- and especially in the Rocky Mountains -- Tillerson said that won't stop ExxonMobil from its long horizon. However, he expects the major "will take a disciplined approach to maximize value, and in the Piceance, we'll set activity levels appropriate to market conditions."

ExxonMobil captured a stake in the gas-rich Horn River Basin of British Columbia last year (see NGI, May 5, 2008). It holds a leading position in the Gulf of Mexico and has another store of assets in Canada's Beaufort Sea. And it is in the "evaluation stages" of a natural gas demonstration project in Wyoming, said Tillerson.

Near LaBarge, WY, ExxonMobil is testing an improved natural gas treating technology called controlled freeze zone (CFZ). CFZ is designed to make carbon capture and storage more affordable and "it leaves a much smaller footprint to reduce gas processing costs," said Tillerson. More than $100 million has been committed by the company to complete the project, which is expected to be operational late this year.

"We're not immune to market conditions, but we'll be able to manage through the downturn," Tillerson said. When loans were easy to obtain and the energy industry seemed primed for expansion, "some in our industry used their cash during this timeframe to purchase assets at the top of the price cycle..." Now, "many of these assets were written off, leaving their shareholders with no value."

Unlike many of its peers and larger independents, ExxonMobil hasn't made a major acquisition since merging with Mobil Corp. nine years ago. It still prefers to quietly buy assets in key strategic areas and rely on research and development to capture an asset's value, said the CEO.

ExxonMobil last year ramped up eight major projects, which at their peak are expected to add 260,000 boe/d net to the company's production, said Tillerson. The nine projects set to begin operations this year, including the Piceance gas project, will at their peak add another 485,000 boe/d net to output. Between 2007 and 2008, noted the CEO, ExxonMobil worldwide captured 1.88 million net acres in unconventional gas resources.

"Our commitment to developing advanced technology, our industry-leading operational and project-management capabilities and exceptional employees continue to position the company as the partner of choice for resource owners around the world," Tillerson said.

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