Exxon's Investment Plans May Be Trimmed by Its Partners

HOUSTON (Dow Jones Newswires), Apr. 1, 2009

Despite the economic crisis, Exxon Mobil Corp. 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, 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 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."

(Brian Baskin in New York contributed to this article)

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

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