Thursday, January 29, 2009

Exxon Mobil Barrel Chests Through Economic/Cheap Oil Hailstorm

"Good times are good and bad times are better," says the wise investor. Exxon Mobil rattled the public last year with its stout refusal to to take its monster cash horde, and step up oil exploration. Now with the themed "terrible triplets" on the IR - oil, commodities and the global health of the economy - Rex Tillerson is licking his chops like any good buccaneer: "It's time to spend, maties."

Looks like Rex is using a little plunder to pull out the big guns. Exxon is looking to increase capital spending to $30 billion, a 20% increase. Excerpts include (link):

The increase will mark his biggest push to discover oil fields and boost fuel and chemicals production.

Exxon’s $36.7 billion cash hoard, which exceeds those of Microsoft Corp. and Warren Buffett’s Berkshire Hathaway Inc., gives Exxon Mobil the unique opportunity to buy assets cheapened by a $100-a-barrel plunge in crude prices, said analyst Neil McMahon of Sanford C. Bernstein & Co. in London. Investing now will mean a return to record profits when the world’s largest economies recover and fuel demand rebounds, McMahon said.

“I consider it a very wise move on the part of Exxon because they’re taking a long-term strategic perspective on energy,” said Nansen Saleri, president of Quantum Reservoir Impact, an advisory firm in Houston, and former chief manager of oil fields for Saudi Arabia’s state oil company. “The energy requirements of the planet will go up once the financial markets shake off the current crisis.”

Profits are in decline, but...

Full-year profit for 2009 will probably fall 45 percent to $24.9 billion, analyst estimates showed, halting a five-year streak of gains during which profit more than tripled and cash on hand ballooned fivefold. Exxon Mobil reaped $186 billion in net income in the past five years, exceeding the annual economic output of Malaysia, the Philippines and Pakistan.

Exxon Mobil shareholders were left behind when crude futures surged to a record $147.27 a barrel in July. While oil producers such as Chevron Corp. and Petroleo Brasileiro SA benefited from oil’s rise during the first half of 2008, Exxon Mobil dropped almost 6 percent as Tillerson amassed cash and bought back stock rather than bolstering output.

After Lehman Brothers Holdings Inc.’s Sept. 15 bankruptcy filing started a meltdown of global credit markets, Exxon Mobil’s cash became a source of strength rather than a sign of weakness, said Gianna Bern, president of Flossmoor, Illinois- based Brookshire Advisory & Research Inc. and a former BP Plc oil trader.

On Brazil...

Conserving cash put Exxon Mobil in a position to fund exploration without resorting to borrowing, Tillerson told reporters last month after giving a speech in Chicago.

Exxon Mobil's biggest opportunities to load up on reserves are in Brazil, home of the Western Hemisphere’s largest petroleum discovery in three decades, and West Africa, Bernstein’s McMahon said in a Jan. 9 note to clients.

Brazil’s state-controlled oil company, Petroleo Brasileiro SA, is short of cash to develop deepwater fields hundreds of miles from shore, McMahon said. Petrobras, as the Rio de Janeiro-based company is known, failed to replace 73 percent of the oil and gas it pumped from the ground last year, according to a Jan. 16 public filing with U.S. securities regulators.

The Brazilian company said last week that it plans $174.4 billion in capital spending over the next five years, financed partly with state loans.

“With Petrobras seemingly struggling for financing, while deep-pocketed Exxon Mobil wants a much bigger position in Brazil, this could be the ideal time for the two companies to form a joint venture,” McMahon said.

Tillerson said he’s unlikely to lead acquisitions of entire companies because prices remain inflated. Partnerships with oil- rich nations work better because they allow Exxon Mobil to obtain reserves in exchange for financing and technical expertise, he said.

Is the economic/cheap oil maelstrom causing other oil producers to cut back? Some, yes; but not all, and here's an article on how the Abu Dhabi National Oil Company is charging forward. Again, commodities' free fall and the torrid world economy is reducing production costs.

- Brewskie

UPDATE: Here's a bit on Imperial Oil, Canada's largest oil company, aims to boost spending by 60%.

1 comment: