Exxon's Investment Plans May Be Trimmed By Its Partners
April 01 2009 - 4:23PM
Dow Jones News
Despite the economic crisis, Exxon Mobil Corp. (XOM) is flush
with cash and plans to invest at record levels this year - but its
partners may have other ideas.
Unlike other major producers like ConocoPhillips (COP), the
Irving, Texas, company has not cut capital investment or sought to
delay projects as it seeks to increase oil and gas production,
which declined 6% in 2008. But Exxon's hallmark disciplined
approach, which it has said will help the company achieve a 2%-3%
annual production growth over the next five years, is being
challenged by some of its partners' short-term priorities: saving
money and sustaining local economies.
An example of this trend is the one-year delay involving the
Barzan gas field, a $5 billion joint venture between Exxon Mobil
and state-run Qatar Petroleum, according to the Middle East
Economic Digest. Exxon Mobil, which owns a 10% stake in the
project, declined to comment on media reports that cited letters
sent by Qatar Petroleum to contractors expecting to bid for the
engineering, procurement and construction of the project.
Analysts say the possible suspension makes sense at a time when
the cost of new projects is expected to drop sharply following the
fall in oil prices to around $49 a barrel, or about 70% below the
all-time high in July 2008. It's also seen as convenient for Qatar,
which is under less pressure to provide additional gas for the
domestic market because runaway demand for electricity and its
industrial and petrochemical products is slowing due to the global
economic crisis.
"It means more for Qatar than for Exxon to save costs," said
Richard Gordon, president of Gordon Energy Solutions, an energy
consulting firm. Qatar Petroleum didn't respond to several requests
for comment.
"The priorities of state partners such as Qatar are changing as
they face much lower oil-export revenues and increasing pressure to
fund significant social programs," said Fadel Gheit, an analyst
with Oppenheimer & Co. Inc. "Exxon does not has these
problems."
"It's not in our long-term interest to drive a lot of these
folks out of business by hitting them over the head with a hammer
just because of the environment we're in," Tillerson said in the
company's analyst meeting last month. But the largest U.S. oil
company by market value warned that several competitors and project
partners have announced plans to lower capital spending and defer
projects, which could impact the oil giant's investment plans.
Exxon Mobil said in March that it will invest about $29 billion
in 2009, or about 11% more than last year.
Exxon Not Alone
Barzan is just one of various projects Exxon has in Qatar.
In 2009, Exxon expects a steep increase in its global liquefied
natural gas production with the addition of four large trains, or
LNG production units, in Qatar and the start-up of receiving
terminals in the U.S., the U.K and Italy. The new trains in Qatar
alone will increase Exxon's net LNG capacity by 1.2 billion cubic
feet per day, essentially doubling total capacity, the company
said.
The delay of Barzan, which is not linked to the liquefied
natural gas projects, however, could foreshadow Qatar's desire to
delay other projects. "I won't be surprised if we see some of the
liquefied natural gas projects being delayed due to Qatar's desire
to cut costs," said Phil Weiss, an analyst at Argus Research.
Exxon is not the only major oil company that has noted that its
capital spending could be affected due to partners' decisions.
France's Total SA (TOT) Chief Executive Christophe de Margerie
recently said it's likely that the $18 billion capital expenditure
budget for this year may not be fully spent because of project
deferrals and lower costs. The driver of the delays, he said, won't
be Total but rather joint-venture partners and contractors dealing
with financing woes.
"We don't want to delay, we don't need to delay," de Margerie
said. "We don't have the problem of the credit crunch of finance to
cover our investment needs."
-By Isabel Ordonez; Dow Jones Newswires; 713.547.9207;
isabel.ordonez@dowjones.com
(Brian Baskin in New York contributed to this article)