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Spend Through the Cycle for Long Term, Says Tillerson

Reacting to today's events won't get ExxonMobil Corp. where it wants to go in the next 10-15 years, CEO Rex Tillerson said Thursday. Instead, spending for the long haul on major projects will keep the major ahead of its peers, he told investment analysts at the company's annual presentation at the New York Stock Exchange.

"As we navigate the global recession, we will continue to employ our business model...of constancy," Tillerson said. "Some have wondered why we don't change it. We keep coming back that this has proven itself at the top of the cycle and at the bottom of the cycle, and we want to be the industry leader. The risks...are considerable, and our focus is on long-term planning...The board of directors regularly discusses the risks to industry, the financial, geopolitical, environmental and technical.

"Environmental risks are frequent headlines in the news, but the outlook for oil and gas is strong and will be the main fuels for at least 30 years, but more than likely it will be well beyond the 30-year horizon."

Natural gas will be a bigger part of the portfolio, said the CEO, giving a nod to the company's announced acquisition of onshore gas producer XTO Energy Inc. (see NGI, Dec. 21, 2009). The transaction remains on track for completion in the second quarter.

"Gas is expected to contribute more significantly to the U.S. and to the global energy mix over the coming decades," said Tillerson. "We plan to create a premier global gas resource organization at XTO's current offices in Fort Worth, Texas, which is similar to our other global organizations...A combined Exxon and XTO is compelling. However, the ultimate value will be measured over many years to come, even decades, in long-term shareholder value that we feel will be created."

Asked whether ExxonMobil was concerned about the lower rates of return in North America, and whether there would be any strategy changes with the XTO transaction, Tillerson said the new assets would be "managed as we manage our portfolio but more broadly. We'll have a large portfolio of opportunities in a global sense that we can prioritize and focus on to deliver best returns."

XTO, he noted, has a "fairly efficient cost structure around what they do here in the U.S. We intend to not just take the benefits of that...but to take the benefit of that against our broader holdings...

"We are not making this transaction so that we can keep doing what everybody's been doing." ExxonMobil management will work to "get returns to acceptable levels and do in a very programmatic way...We operate as a return-based model, and most of those players are not return based, they are driven by other metrics."

Last year ExxonMobil earned $19.3 billion and generated $28.4 billion in cash flow, which provided the company a cushion to fund business plans and generate shareholder dividends. The Irving, TX-based producer's return on capital employed was 16.3%, well ahead of its competitors.

"We are executing a large inventory of projects and many others are under development," said the CEO. "Actual spending in a given year will vary depending on the pace and the progress of each project. However, we are anticipating an investment profile of approximately $28 billion in 2010 and a range of $25 billion to $30 billion per year on average through the year 2014."

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