Exxon Boosts Exploration in a Maturing US Gulf of Mexico

HOUSTON (Dow Jones Newswires), Mar. 31, 2009

After years of flirtation, it seems that the U.S. Gulf of Mexico has finally seduced Exxon Mobil Corp.

The Irving, Texas, oil giant said in a financial and operating review released Monday that in 2008 it obtained 142 leases to explore for oil and gas in the offshore Gulf -- up from five tracts a year before and seven in 2006. This level of interest is a sign that the area, once considered a wild frontier, has reached maturity in the eyes of the largest oil company in the U.S.

"There's more oil to be found than they thought before," said Jason Gammel, a New York-based analyst with Macquarie.

Exxon has lagged behind rivals Royal Dutch Shell PLC, BP PLC and Chevron Corp. in extracting oil and gas from the Gulf of Mexico's rich deep water subsoil, although the company has accumulated significant offshore acreage and invested in major projects such as the BP-operated Thunder Horse platform, the second-largest oilfield in the U.S.

Now Exxon seems eager to catch up - or at least willing to gear up for a major wave of exploration. The firm is being especially aggressive in the western part of the Gulf, where it was the top bidder at a lease sale last August, winning 128 tracts. Exxon was also among the top 10 bidders at a Central U.S. Gulf of Mexico lease sale held in New Orleans earlier this month, with 15 high bids.

Lysle Brinker, an analyst with IHS Herold, said that the shift is partly due to Exxon's troubles with governments in Venezuela, Indonesia and other countries intent on gaining more control over their natural resources. Lack of access makes Exxon and other international oil firms fight an uphill battle to replace the hydrocarbons they extract with new reserves.

Exxon highlighted in its report that it added 2.2 billion oil-equivalent barrels to its resource base due to significant contributions from drilling programs in the U.S. Gulf of Mexico, western Canada, the onshore U.S. and West Africa.

In the deepwater Gulf, where multibillion-dollar platforms and $50 million wells are the norm, "the economics are much tighter, but nonetheless it's still an area where you're free to roam," Brinker said.

Macquarie's Gammel said that the cost of operating in the deepwater Gulf has come down because a decade of aggressive investment by other oil firms has created a critical mass of infrastructure.

In addition, the risk of not finding enough oil and gas to make a big investment profitable has decreased in the wake of recent, rich hydrocarbon discoveries in the lower Tertiary area of the Gulf. These new conditions have created an environment that famously disciplined Exxon is comfortable with. "This is a very return-driven company," Gammel said.

In 2008, Exxon produced an average of about 48,000 barrels of oil and liquids and 429 million cubic feet of gas per day, or about 4% of oil and 6% of the Gulf's oil and gas output, respectively.

The company declined to comment on its participation in specific lease sales, but said that the U.S. "continues to provide a significant contribution to ExxonMobil's profitability."  

Copyright (c) 2009 Dow Jones & Company, Inc.

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