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ExxonMobil Exploring All Avenues to Increase Gas Demand

All the things that North America's natural gas operators are doing today to gin up demand for the fuel here and abroad -- liquefied natural gas (LNG) exports, increased use as a transportation fuel, petrochemical facility expansions, power plant conversions from coal to gas and more -- already are being investigated by ExxonMobil Corp. today, an executive said Thursday.

Investor relations chief David Rosenthal talked about the strategy for the No. 1 gas producer in North America during a conference call in which he discussed the company's global operational performance in the first quarter.

"It all starts with the obvious competitive advantages that we have across our entire space," Rosenthal said of ExxonMobil's North American gas holdings, as well as those overseas. "These are advantages that we have and that we've certainly demonstrated in U.S.-based chemicals businesses and our global position in LNG.

"Given that competitive advantage background, it won't come as any surprise to learn that we are studying and assessing proposals...I have no specifics to offer other than to say, some of the advantages are all the way through taking resources into products, and as we are always doing, thinking about how to optimally develop those resources we have...through marketing advantages, etc."

The Irving, TX-based oil major has an "integrated business" that is able to "exploit those resources...what others are doing, we are doing. Rest assured that we've got others studying those things as well."

Although ExxonMobil's domestic gas position may be weighing on the company's performance of late, Rosenthal said as always, the company view is long term. However, the eight million net acres of unconventional land in the U.S. onshore, which are helmed by subsidiary XTO Energy Inc., have fewer gas drilling rigs running today than a year ago, and fewer will be running in the months to come.

"When you look at the gas rig count and what we are doing, it's important to step back and think about what we are doing overall," Rosenthal said. "In the last year or so we had 70 to 72 rigs running...Now it's 62 on average, 61 today [Thursday], and we continue to shift those to liquids-rich plays."

ExxonMobil is "focusing" on the oily Bakken Shale, "where we have been over the last many months increasing rigs, and we will continue to increase rigs. Now we have eight operated rigs running in the Bakken, and we are progressing very well and we are encouraged by that."

In the Marcellus Shale, four operated gas rigs are running on "just under 700,000 acres." ExxonMobil also is delineating about 87,000 acres in the Utica Shale, said the investor relations chief. "We're getting ready for wells in the Utica, so all of it's going well.

Another big focus for the exploration unit is the Permian Basin, as well as the nearby Woodford Shale, where ExxonMobil has 10 rigs now in operation. Earlier this month the producer added 58,400 more net acres to its portfolio (see Daily GPI, April 10) and it now holds an estimated 170,000 acres in the Woodford/Ardmore formations of Oklahoma, triple what it held a year ago.

The promising Woodford leasehold was acquired for "roughly 50% below a major acquisition in the Eagle Ford," Rosenthal said. The acreage's proved reserves are estimated at around 600,000 boe, which the producer expects to develop for about $10/boe.

"We are continuing to acquire liquids-rich acreage at attractive prices and shift our rig fleet over to those areas while minimizing incremental exposure to dry gas wells," said Rosenthal.

ExxonMobil's net income plunged 11% in the first quarter from a year ago as quarterly output fell 8.8% year/year, the most since 2008, which failed to counter higher crude oil prices. Net profits were $9.45 billion ($2.00/share) versus $10.65 billion ($2.14) a year ago. The latest earnings failed to match Wall Street's expectations of $2.08/share.

U.S. upstream operational earnings were $1.01 billion, which was $269 million lower than in 1Q2011. Realized U.S. gas prices fell by 40% from a year ago to average $2.503/MMBtu.

Natural gas and oil production worldwide declined by 5% from 1Q2011; excluding one-time impacts, output fell 1%. Quarterly gas production totaled 14 Bcf/d, down 489 MMcf/d from the year-ago period, mostly on field declines and asset sales. Liquids output also dropped to 2.2 million b/d, down 185,000 b/d.

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