Exxon Mulls over Scarborough

Zacks

ExxonMobil Corporation (XOM) remains doubtful about the development of the Scarborough natural gas field off Australia's west coast and expects a decision around the second half of 2013.

The Scarborough gas field − a 50:50 joint venture with Anglo-Australian mining giant BHP Billiton Limited (BHP) − is located in 900 meters of water, 300 kilometer offshore Western Australia in the Carnarvon Basin. A unit of ExxonMobil, Esso Australia Resources Pty Ltd, operates the filed, which is believed to be the most isolated of the Carnarvon Basin gas resources. Hence, the development of the filed remains challenging due to location as well as operating environment and resource distinctiveness.

As the operator, ExxonMobil is committed to commercially developing the Scarborough field. However, the remote location of the field has delayed the development timeline to not before mid 2013.

The companies are to evaluate several options that include supplying gas to liquefied natural gas (LNG) plants of other companies or the construction of a new LNG terminal on the coastline by themselves.

Major international energy giants, with investments to the tune of $175 billion or more, are busy building approximately 10 LNG projects on Australia’s coastline or at its proximity. This may lead Down Under to surpass even Qatar in becoming the world's leading exporter of LNG by the end of the decade.

Meanwhile, a supply glut has put natural gas prices in the U.S. under pressure during the past year or so, as production from dense rock formations – through techniques of horizontal drilling and hydraulic fracturing – remains robust along with significant gas discoveries. Given this demand/supply dynamics, Australia may face intense competition from the U.S. as the companies target Asia's rising demand for energy.

Again, companies like Caltex Australia Ltd. or Royal Dutch Shell Plc (RDS.A) have chosen to shut their refining facility and convert it to a fuel import terminal. However, ExxonMobil still has its Altona refinery west of Melbourne operational. The refinery has a daily capacity of 80,000 barrels.

Irving, Texas-based ExxonMobil Corporation is the world’s largest publicly traded oil company, engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses. Approximately 83% of Exxon’s earnings come from its operations outside the U.S.

In Western Australia, the company holds a 25% interest in Australia's biggest LNG project, the $37 billion Chevron Corp. (CVX)-operated Gorgon project.

ExxonMobil carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation on the stock.

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