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Exxon Set for Record Startups in '14

Zacks Equity Research

U.S. energy behemoth, Exxon Mobil Corp. (XOM) announced that it expects to start production at 10 major projects, a company record in 2014. This would add new capacity of about 300,000 net oil equivalent barrels per day paving way for growth.

However, the encouraging startup plan is the result of higher levels of spending till 2013. 2014 is slated to witness a slide in spending levels. Market sentiment also was bearish and following the announcement, shares fell 1.5% to close at $93.80 on Mar 5.

In 2014, the company's capital spending is estimated to decline to $39.8 billion from a peak of $42.5 billion in 2013. Going forward, the trend is expected to continue with estimates which exclude potential acquisitions. Capital expenditures are expected to average less than $37 billion per year from 2015 to 2017.

At year-end 2013, ExxonMobil's proved reserves totaled 25.2 billion oil-equivalent barrels, comprising 53% liquids (up from 51% in 2012) and 47% natural gas (down from 49%).

Liquids addition during 2013 totaled 1.2 billion barrels, or 153% of production, and natural gas addition totaled 400 million oil-equivalent barrels for a 52% replacement ratio. Excluding the impact of asset sales, reserves addition replaced 106% of production.

Reserve addition at Upper Zakum in Abu Dhabi totaled more than 700 million barrels of crude oil. Reserve addition from the liquids-rich Woodford, Bakken and Permian plays in the United States and the Montney and Duvernay plays in Canada aggregated over 300 million oil equivalent barrels. Other additions to proved reserves were made in Canada, Kazakhstan, the Gulf of Mexico, Nigeria and the Netherlands.

Looking forward, Exxon Mobil anticipates additional project startups over the next few years in several countries, including Australia, Indonesia, Canada, Nigeria and the United States. All of these projects are expected to add about 1 million net oil equivalent barrels per day by 2017. In North America, ExxonMobil's near-term production outlook is made up of significant high-margin, low-risk liquids growth.

The company stated that it is pursuing more than 120 projects to develop about 24 billion oil equivalent barrels of oil and natural gas. Liquids production is expected to grow 2% in 2014 and 4% annually from 2015 to 2017, representing the majority of ExxonMobil's total production increase.

Liquids and liquids linked natural gas are projected to account for 69% of the company's total production by 2017, improving the profitability mix of the portfolio. The company is pursuing investment opportunities to expand its Chemical business and serve major growth markets. These projects integrate Upstream and Downstream operations and employ proprietary technologies to increase high-value product sales.

ExxonMobil is the world’s best run integrated oil company given its track record of superior return on capital employed. As the largest publicly traded oil company, ExxonMobil has long been a core holding for investors seeking a defensive name with continued dividend growth.
We, however, remain skeptical due to the company’s sharp drop in refinery utilization rates during the fourth quarter. Owing to lower crack spreads and narrowed crude oil differentials, fortunes of refiners industry wide went southward. In the fourth quarter, ExxonMobil's refinery throughput averaged 4.5 million barrels per day (:MMBPD), down 8% from the year-earlier level of 4.8 MMBPD. As a result, the segment recorded profits of $916 million against $1.8 billion in the year-ago quarter.

ExxonMobil currently carries a short-term Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Helmerich & Payne, Inc. (HP), Matrix Service Co. (MTRX) and Patterson-UTI Energy Inc. (PTEN). All these stocks hold a Zacks Rank #1 (Strong Buy).

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