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ExxonMobil Exploring Marcellus Shale with Private Producer

ExxonMobil Corp., which is buying onshore natural gas shale giant XTO Energy Inc., disclosed last week that it also has partnered with a privately held Pennsylvania-based independent to explore nearly 300,000 net acres in the Marcellus Shale.

During a conference call to discuss the oil major's 4Q2009 earnings, investor relations chief David Rosenthal said ExxonMobil completed a joint venture agreement with Pennsylvania General Energy (PGE) last year. The PGE investment is one more piece in the puzzle to allow ExxonMobil to exploit North America's unconventional gas reserves.

"We've been encouraged by the production rates so far," Rosenthal said, but he declined to provide any initial production rate numbers. Rosenthal first disclosed ExxonMobil's pursuit of the Marcellus leasehold last July (see NGI, Aug. 3, 2009).

PGE's Pennsylvania leasehold covers about 290,000 net acres; it also has around 75,000 net acres in New York. The independent drilled its first vertical well in the play in July 2008 and now is working on some horizontal wells.

XTO, which ExxonMobil is acquiring for $41 billion (see NGI, Dec. 21, 2009), acquired a substantial Marcellus Shale leasehold in 2008 after paying Linn Energy LLC $600 million for 152,000 net acres spread across western Pennsylvania and West Virginia (see NGI, April 21, 2008). Along with XTO's extensive shale holdings in nearly every big play on the continent, ExxonMobil adds to its unconventional gas reserves held in the Horn River Basin of British Columbia and coalbed methane projects under way in the Piceance Basin of Colorado (see NGI, July 13, 2009; June 29, 2009).

Once the XTO merger is completed, which is expected by the end of June, ExxonMobil would hold more than 5.5 million net acres of unconventional resources across the globe. Overall, ExxonMobil's natural gas output in 4Q2009 was 10.77 Bcf/d, up 868 MMcf/d from 4Q2008.

However, the bid to acquire more unconventional gas assets to add to its conventional reserves doesn't mean ExxonMobil won't continue to pursue and develop oil prospects, Rosenthal told analysts. ExxonMobil launched eight major oil and gas projects worldwide last year and several happened to be weighted to gas, he said. Net gas production in 2009 was up almost 9% versus 2008, while oil production fell about 3%.

A joint venture with Qatar Petroleum to produce and ship liquefied natural gas (LNG) has completed commissioning RasGas Train 7 and it is readying its first shipment "in the coming weeks," he said. "It's the fourth train brought online with Qatar Petroleum, and we expect to eventually participate in 62 million tons/year with Qatar Petroleum."

Asked whether ExxonMobil may divert some of its LNG cargoes from planned deliveries to the United States, Rosenthal said the cargoes would go wherever the company would make the most money.

"Across our Qatar projects, we have a portfolio of sales, some of which are fixed, some of which are termed up. A number of them are available to have the flexibility to be diverted to whichever market gets the best realization and value, and we are actively pursing those options literally on a daily basis," said Rosenthal. ExxonMobil also is a partner in the Golden Pass LNG import terminal near Sabine Pass, TX, which is on track to begin taking deliveries "in the second half of this year."

Regardless, he said, "we're also taking advantage of selling spot cargoes in the Asia Pacific area. Wherever the best netback is, wherever demand is, that's where our cargoes are going."

ExxonMobil's net profits in 4Q2009 excluding one-time items were $6.05 billion, down 23% from 4Q2008. Lower refining and fuels margins and lower natural gas realizations were blamed for the drop, although losses were partly offset by higher crude oil realizations. Upstream earnings were $5.78 billion, up $146 million from 4Q2008. Earnings from U.S. Upstream operations topped $1 billion, which was $312 million higher than in the same period of 2008.

On an oil-equivalent basis, production increased nearly 2% from 4Q2008. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, production grew more than 3%. Liquids output totaled 2.4 billion b/d, down 79,000 b/d from 4Q2008.

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