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WSJ.com Forums :: View topic - Is Big Oil Spending Enough?
Posted: Tue Apr 15, 2008 5:43 pm Post subject: Is Big Oil Spending Enough?
Welcome to Talking Business.
With crude oil surging to a record $113 a barrel this week, supply and demand in the energy markets are being stretched in unexpected ways.
In this week’s Business column, I look at Exxon Mobil’s capital spending and exploration patterns in recent years, which have been cautious.
Has Exxon Mobil been too cautious?
Share your view on the board below.
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Posted: Wed Apr 16, 2008 12:33 am Post subject: Don't underestimate the Tiger
It would be too easy for ExxonMobil to just start poring money into exploration, but that leads to waste and dry holes and no more oil coming out of the ground than if you just sat on the cash.
They are disciplined and know what they are doing, they have not made many mistakes, which is why they are the gold standard among the big, do-it-all energy companies.
I'll put my money on EM's management, in fact I do that through owning substantial shares in the Company.
It has rewarded me quite well over the last 20 years, as I suspect it will over the next 20.
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Posted: Wed Apr 16, 2008 4:05 am Post subject: Fleas
Exxon is correct in not overspending.
They know better than anyone that oil is not worth more than $40 a barrel.
98% of the wells are more than 10 years old and cost the same to operate as 10 plus years ago.
It’s those speculating fleas that jumped off the real estate market and onto the oil and gold markets that are driving up the price.
Once they jump again, Exxon’s budget will be right in place.
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Posted: Wed Apr 16, 2008 4:34 am Post subject: Re: Is Big Oil Spending Enough?
Lest you forget, Exxon made one of the biggest exploration discoveries of all time- they bought Mobil on the cheap.
Mobil had a lot of reserves and so so management.
ExxonMobil has no need to chase the market.
If their projects keep their production level or even at a mild decline, they are doing great.
My guess- ExxonMobil will end up buying, on the cheap, Tar Sands operators in Canada.
The capital involved (and expertise and committment) is too dear for some Tar Sands operators- especially if oil prices reverse.
At these oil prices- massive implementation of Coal to Diesel is economic.
So take that, roll it up, and smoke it.
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Posted: Wed Apr 16, 2008 4:40 am Post subject: Re: Fleas
Conservatism CAN be good, and being CAREFUL stewards of shareholder money is to be applauded.
However, XOM did NOT behave in a shrewd, CONTRARIAN manner 5 - 10 years ago, when oil and natural gas prices were far lower.
Many of its competitors took calculated risks and bought assets then that are paying off for them very well.
Given XOM's corporate culture, it may be too much to expect them to be able to recognize, let alone act on, good opportunities which may occur in the next several years, whether or not oil or natural gas prices correct significantly or not.
Given our "friends" in Russia, Venezuela, Iran, Nigeria, and other less-than stable or hospitable environments, and their propensity to exacerbate an already constrained supply situation, there may never be an OBVIOUSLY clear-cut opportunity again, which XOM management may not ever accept.
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Posted: Wed Apr 16, 2008 8:42 am Post subject: Re: Is Big Oil Spending Enough?
(1 rating)
Nobody can predict the future, but these are pretty smart dudes and I trust them to allocate funds appropriately, although I wish they'd up the dividend a bit more as I could use the dough.
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Posted: Wed Apr 16, 2008 10:33 am Post subject: Re: Is Big Oil Spending Enough?
Showing expenditures as a percent of revenues, obscures the facty that since revenues have increased sharply so has capital spending.
Spending on capital improvements takes time to accomplish as opposed to the price of crude oil that can change 10 percent a day largely as the result of speculation.
Of course the regulatory and legal impediments (Environmental Impact Statements and legal challenges) also tend to surpress capital investmemnt.
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Posted: Wed Apr 16, 2008 11:57 am Post subject: Re: Is Big Oil Spending Enough?
(1 rating)
If I'm spending $250 million a well (the cost for many deep-water wells), operating in a country with a strong risk my billions of dollars of investment will be confiscated (Venezuela, Russia), exposed to oil that rockets between $10/bbl and $110/bbl, abide by the Foreign Corrupt Practices Rules (no bribes), meet the standards of my investors and the market, and are looking for projects that will have a significant positive impact on the bottom line--all while being excluded from high-potential areas, including a good chunk of the US--I imagine I would have problems finding enough suitable oil E&P projects.
XOM has made its share of mistakes: the Valdez and management's immediate poor handling of it;
A long-ago investment in Colorado oil shale;
Ongoing public relations and political tone-deafness until Tillerson.
But XOM is in not in business because it finds oil;
It is in business because it finds and develops oil with financial prudence in a volatile environment.
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Posted: Wed Apr 16, 2008 12:27 pm Post subject: Re: Is Big Oil Spending Enough?
It should also be noted that Rex Tillerson & his management team are smarter, more competent, and indeed more ethical than any gang of bozos that happen to take over the White House next year.
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Posted: Wed Apr 16, 2008 1:52 pm Post subject: Re: Is Big Oil Spending Enough?
(1 rating)
Now that Venezuela has beat our own Congress in enacting a windfall profits tax, ExxonMobil's move to leave Chavez to his own incompetency looks brilliant.
I won't be selling any of my shares for a while.
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Posted: Wed Apr 16, 2008 2:20 pm Post subject: Re: Is Big Oil Spending Enough?
As a shareholder, both direct and indirect, I applaud them.
They are not falling for the "it's different this time" routine.
Hasn't the past few bubbles taught anyone a lesson yet?
A commodity bubble will not last forever.
They are utilizing "our" resources in a methodical way, focusing on the highest return projects.
As part of their overall financial and capital management, they do purchase a large number of shares back.
Perhaps because when they see a cheap deal they act upon it.
While the price of oil has been accelerating in recent months, are the true drivers of that based on actual demand?
I suspect, that a large majority of that increase is due to pure utter financial speculation in the form of contracts traded with low margin requirements.
Not sure, when was the last time you drove on the highways of the US, I can tell you, traffic has become less, not more.
One may argue, that emerging countries are using more oil, that may be true, but their actual usage is a significantly lower amount that the US's daily consumption.
Goody, in fifteen years, I'll be the controlling shareholder, since I never intend to tender my shares back to them!
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Posted: Wed Apr 16, 2008 2:25 pm Post subject: Re: Is Big Oil Spending Enough?
I'll second that motion!
And best of all, they will be buying those operators at a heck of a cheap price, even if they choose to use equity to do it.
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Posted: Wed Apr 16, 2008 4:52 pm Post subject: Re: Is Big Oil Spending Enough?
Easy question to answer.
If commodity prices stay high (my position), Exxon will be a laggard.
If commodity prices plummet (not likely due to the fast decline rates for currently producing wells) they will do very well relative to their peers.
In my opinion, Exxon's international growth strategy has left them in a bad position.
They are facing serious political risk to some major projects (e.g.
Russia, Venezuela, Kazakhstan) and they have nothing to fall back on here in North America.
Most of the prospective oil sands and unconventional gas acreage has been snapped up by independents.
I found it most telling when in Exxon's 2006 annual report they highlighted their 11,000 acre position in the Barnett Shale.
The large independents have 20x as much under lease.
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Posted: Wed Apr 16, 2008 6:03 pm Post subject: Re: Fleas
Nicely said.
It is a messy world out there.
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