In the midst of falling oil production and a first quarter net income decline of 11 percent, Exxon Mobil Corp. is both shifting rigs from shale gas areas to liquids-rich areas such as North Dakota’s Bakken play and acquiring more properties, a top executive told investors April 26.
The move is a switch for ExxonMobil, which had continued to drill for shale gas despite low natural gas prices.
In a first quarter earnings conference call David S. Rosenthal, ExxonMobil vice president of investor relations and secretary, said the company was currently running 61 rigs in the United States, having averaged 64 in the first quarter.
In North America, he said, ExxonMobil holds “a material position in multiple unconventional plays across 8 million acres, and we continue to increase our lease holdings in emerging liquids-rich plays, like the Woodford Ardmore,” where the company currently has 10 operating rigs.
ExxonMobil’s acreage position in the Woodford Ardmore play “tripled in 2011 to more than 170,000 acres, with acquisition costs on a per-acre basis roughly 50 percent below major industry acquisitions in the Eagle Ford play,” Rosenthal said.
Focusing on Bakken rig count
In response to a request from Arjun N. Murti in Goldman Sachs Group’s research division to provide an update on ExxonMobil’s activities in the Marcellus and Utica shale plays, as well as the Bakken, “in terms of maybe how the rig counts are trending and what you’re expected to do here over the rest of this year,” Rosenthal replied, “Let me start with the Bakken … because that is an area where we have been, over the last many months, increasing rigs, and we have continued to increase our rigs, with a total of eight rigs currently operated by ExxonMobil subsidiary XTO Energy.”
Things are “progressing very well” in the Bakken, he said, and “we are encouraged by that.”
The company is continuing to shift its rigs “to the liquids-rich plays … really focusing on the Bakken (North Dakota), Permian (west Texas), the Ardmore (southern Oklahoma). We’re looking at and getting ready to … get some wells down in the Utica (eastern Ohio), so all of that’s going well and, again, continuing to acquire liquids-rich acreage at attractive prices and shift our rig fleet over to those areas while minimizing the incremental exposure to dry gas wells.”
First quarterly drop since 2009
The quarterly drop was the first since late 2009. The company produced less oil and natural gas and profits dropped at its chemical plants and U.S. refineries.
On top of that, the cost of oil, which rose 14 percent in the U.S. during the quarter, kept ExxonMobil from earning bigger profits on the chemicals and gasoline it sold.
But there was some positive news for investors. ExxonMobil sold oil for higher prices around the world, and international natural gas prices rose by 16 percent. Profit rose for its international refining operations. ExxonMobil also plans to boost its quarterly dividend by 21 percent, the largest increase since 1975, making it the biggest corporate dividend payer. ExxonMobil, America’s largest energy company earned $9.45 billion, or $2 per share, from January to March. Revenue rose 8.8 percent to $124.1 billion.
Still, the results were short of Wall Street expectations.
“The lower production is certainly a negative,” Morningstar Inc. analyst Allen Good told the Associated Press.
“When you get as big as Exxon, it’s hard to keep growing,” Blake Fernandez, an analyst with Howard Weil Inc., told the Associated Press. “There’s only so many projects you can take on at the same time.”
ExxonMobil isn’t alone in its struggles. Its production of oil and natural gas was flat last year. Chevron Corp., BP and Royal Dutch Shell also produced less.
In the first three months of this year, ExxonMobil’s output fell 5.5 percent, twice the rate expected for the year.
Must find more crude sources
A handful of trends are keeping oil companies from pumping more oil and gas. Existing fields produce less as they get older. New wells are tougher, and more expensive, to find.
And some of the world’s best resources are controlled by foreign governments that want to keep their oil revenue at home. They typically offer contracts that limit the amount of oil and gas that partners, such as ExxonMobil, can sell as prices rise.
ExxonMobil must find new sources of crude to get its production back up. It will plow $185 billion into capital projects over the next five years. That’s up 29 percent from the previous five-year period, and much of the budget is devoted to finding more oil.
ExxonMobil said production will eventually grow about 2-3 percent annually over the next several years.
The company expects production soon from oil fields in Canada and wells in Angola and Nigeria. It’s also boosting production in Iraq.
Rosenthal wouldn’t comment about reports that the company has been banned from bidding for more contracts in Iraq next month. Iraq’s state run oil company said it will turn away future offers from ExxonMobil after the company signed deals with the self-ruled Kurds last year against the wishes of the Iraqi central government.
Rosneft, Exxon to study tight oil in Siberia
ExxonMobil also recently signed a deal with Russian oil giant Rosneft to search for oil and gas in the Arctic and the Black Sea. Drilling could begin as early as 2014. The Russian Arctic is in such a remote and frigid part of the world, however, that moving quickly will be difficult, the company said.
It “will require all of the technological and operational capabilities to explore,” Rosenthal said.
As part of the deal Rosneft will “take equity in promising exploration and development projects in the United States and Canada, including the La Escalera Ranch project in the Delaware Basin in West Texas and equity in the Harmattan acreage in the Cardium play of the western Canada basin in Alberta. ... In addition, Rosneft and ExxonMobil will jointly study tight oil production technologies in western Siberia,” he said.
