The main headline out of Exxon’s analyst presentation yesterday was that it continues to make billions of dollars and is spending them even as others pull back in the economic downturn. That Exxon is going to shell out another $28bn this year in capital spending is significant, but not particularly surprising.
So, what else to take away? There were a few things.
For one, Rex Tillerson, Exxon’s chief executive, answered the question about why the company did not do more acquiring when the economy was at its worst. He noted that even though things seemed bad, many companies had cash from the boom years and were not ready to accept the valuations Exxon would have put on assets.
On top of that, he said, Exxon is not simply looking to pick up a portfolio asset and milk it out; it does not need to do that. Instead, the company is looking for material assets it can improve and that have long-term potential. The asset it did move to pick up, XTO Energy, represented that, he said. And that is because Exxon sees natural gas – XTO’s key resource – as a growing part of its future.
Indeed, there was an interesting slide in the analyst presentation, showing Exxon forecasting natural gas and so-called ‘other’ resources will grow faster than oil growth as an energy source through 2030. That ‘other’ segment was defined as nuclear, hydro, geothermal, biomass, wind, solar and biofuels.
Despite the hoopla expressed around whether Exxon’s acquisition of XTO would go through, in light of an exit clause that allows it to walk away if the threat of regulation makes the key technology used to tap the gas uneconomical, Tillerson spoke confidently about closing the deal in the second quarter.
Some analysts were concerned Exxon might lose the XTO staff that make the purchase so valuable, given that it has taken expertise and experience, combined with technological advances, to make the US onshore gas boom happen. To capitalise on that, Exxon needs the people with the know-how, not just XTO’s gas assets. Tillerson said Exxon has vowed to keep XTO intact while bringing its own global portfolio into that organisation.
Despite Exxon’s belief in the strength of the US onshore gas boom, the company said it does not expect it to grow to such an extent that the US begins exporting gas to the wider world. Given the expectations for energy demand, and the rapid decline of conventional fuel sources, Exxon felt north America would continue to require imports.
And that is why Exxon is continuing to look for opportunities globally. In November, the company won rights to the West Qurna 1 field development in Iraq. Tillerson said the company is in very early days there and just had its first work planning meeting:
We feel reasonably positive about moving forward…If we are able to execute Iraq, it will deliver for us a double digit return.