Exxon Mobil Corp., the world's biggest oil company, plans to spend almost $21 billion exploring for oil and expanding refineries this year as a worldwide shortage of drilling rigs inflates costs.
The company plans to begin pumping oil or gas from 20 projects in the next three years after seven start-ups in 2006, CEO Rex Tillerson told analysts yesterday at a meeting in New York. The capital budget marks an increase of about 5.5% over the $19.9 billion that Irving, Texas-based Exxon Mobil Corp. spent last year on exploration and construction or expansion of fuel and chemicals plants.
Exxon Mobil has 40 oil and natural-gas drilling rigs at work around the world. Rig rents have soared to all-time highs, including rates of more than $500,000 a day for some of the most advanced offshore units that operate in deep waters, as producers compete for the few units available. The spending increase reflects „higher levels of drilling and project activity, as well as market factors,” Stuart McGill, a senior vice president who oversees Exxon Mobil's $17 billion drilling budget, said at the analyst meeting.
„Exxon Mobil is not immune to the cost pressures affecting the entire industry.” The company boosted oil and natural-gas output by 4.2% last year to the equivalent of 4.24 million barrels of crude a day. Exploration projects the company plans over the next three years will add the equivalent of 1 million barrels of oil a day to production, Tillerson said.
Drilling costs rose 9% to 10% in the past year, Tillerson told reporters after the analyst meeting. „Rig rates are not likely to abate until some of the new builds start coming out of shipyards,” he said. Exxon Mobil's biggest US rival, San Ramon, California-based Chevron Corp., plans to boost spending by 18% this year to almost $20 billion. The company expects 2007 output to drop by the most in three years because of contract changes in Venezuela and project delays in Kazakhstan.
Shares of Exxon Mobil rose 64 cents to $71.64 in New York Stock Exchange composite trading. Before yesterday, the stock had dropped 7.3% this year. Exxon Mobil won't make any new investments in Venezuela, where President Hugo Chavez's government is seizing part of the company's stake in a heavy-oil project, Tillerson said. He also criticized Alaskan officials for what he called their „poor record” in sticking to contracts after the state threw out a 2006 agreement on building a gas pipeline.
New project managers have been assigned to Kazakhstan's Kashagan field, the largest discovery in 30 years, after delays that will postpone output, Tillerson said. Exxon Mobil has a 19% stake in the project. Italy's Eni SpA, the operating partner, last month said Kashagan won't begin producing oil until the Q3 of 2010, instead of the previous target of 2008. The other owners include Royal Dutch Shell Plc, Total SA, ConocoPhillips, and Inpex Holdings Inc., Japan's largest oil explorer. Exxon Mobil has been forced to cut oil output from wells in Venezuela, Nigeria and Abu Dhabi as those nations comply with limits set by the Organization of Petroleum Exporting Countries, Tillerson said.
In Venezuela, the company is producing just enough to maintain operations at the Cerro Negro upgrader, which processes tar-like crude, he said. The production cuts in those countries „are not significant in terms of their impact on our volume performance,” Tillerson told reporters. He declined to say how many barrels of output are idled.
Tillerson said the company expects to buy back $7 billion of its stock during the current quarter. He didn't provide a full-year estimate for buybacks. Mark Gilman, an analyst at Benchmark Co. in New York, said Exxon Mobil should concentrate more on exploration and stop spending so much on share buybacks. „ I would very much like to see a much more active, high-impact exploration program from the company,” Gilman said before Tillerson's presentation began.
„Most importantly, what I would like to see is the company embrace a somewhat more aggressive investment program overall, and at the same time, reduce its commitment to share buyback, which in my view adds no value whatsoever to the shares.” Exxon spent $29.6 billion on buybacks last year, a 63% increase from a year earlier, according to public filings. Dividend payouts rose 6.3% to $7.6 billion. (Bloomberg)