ExxonMobil Corp. last week announced plans to invest close to $190 billion over the next five years to more than double exploration acreage in proven and emerging oil-rich areas to boost underperforming output and earnings. The amount comes to about $38 billion of upstream spending a year, or about $1 billion more than ExxonMobil spent in 2012 and a new record for the company.
“I never would have dreamed I’d be spending at this level,” CEO Rex Tillerson said last Wednesday as he laid out the financial plans. He provided details on the E&P plans at the company’s annual analyst meeting in New York City. “An unprecedented level of investment is needed to develop new energy technologies to expand supply of traditional fuels and advance new energy sources.”
Total output is forecast to increase by about 4% a year between now and 2017 as the producer ramps up production at 28 major projects, 24 of which are liquids or liquids-linked. The emphasis to analysts was on oil projects, not natural gas. As much as 51.4% of ExxonMobil’s total global output was from natural gas in the first three months of 2012. The percentage dropped to 48.7% in 4Q2012.
ExxonMobil is the largest natural gas producer in North America. However, depressed gas prices led the operator to move onshore rigs to more oily plays; more money also is being directed to big oil targets in the Gulf of Mexico (see NGI, Feb. 4).
By mid-2012 ExxonMobil had only 51 rigs drilling specifically for dry natural gas in the U.S. onshore (see NGI, July 30, 2012). Total gas output in the final three months of 2012 totaled 12.54 Bcf/d, down 1.14 Bcf/d , or close to 6%, from 4Q2011. From October through December total output was 54.3 million boe/d, down 5% year/year.
Natural gas production likely will continue to trend down, falling by about 5% this year mostly because of a lack of pricing power, Tillerson explained. Gas production is set to strengthen slowly, increasing by about 1%/year by 2017, he told analysts. Total oil and gas output should fall by about 1% this year but be 2-3% higher a year by 2017.
In addition to a growing stable of liquids developments, several U.S. investments now working would boost U.S. natural gas demand. ExxonMobil Chemical Co.’s multi-billion-dollar plan to expand its Baytown, TX, petrochemicals complex is on track, an executive said last week at the IHS CERAWeek 2013 conference in Houston (see related story). In addition, a $10 billion liquefied natural gas export joint venture project is in the works on the Texas Gulf Coast in Sabine Pass.
Major projects slated to come online in the next three years include the Kearl oilsands facility in Alberta, as well as a liquefied natural gas export project in Papua, New Guinea. Start-ups should deliver 1 million boe over the next five years, said Tillerson.
Tudor, Pickering, Holt & Co.’s Robert Kessler and Brandon Mei said in a note the news that ExxonMobil was dropping its production guidance and lifting its capital spending was the “continuation of the unwelcome trend for the majors…The 6% production decline in 2012 makes the forward growth guidance off this lower base of 2-3% per year to ’17 less impressive.”
By offering production guidance that doesn’t exclude future asset sales, but continuing to sell assets to fund shareholder distributions at their current pace, “a ‘trust me’ dynamic has emerged that works until shareholder distributions are ultimately curtailed or the market begins to more heavily risk the production growth assumption…” However, “we would not be surprised to ultimately see another sizeable acquisition, paid for with equity…valuable equity.”
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