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Exxon's Usan Commences Production

Zacks Equity Research

ExxonMobil Corporation (XOM), through its Nigerian affiliate − ExxonMobil subsidiary Esso E&P Nigeria (Offshore East) Limited − experienced the first oil from the Usan field off the coast of West Africa. This is expected to boost Nigeria’s daily oil production capacity by 180,000 barrels at peak level. Nigeria is considered to be Organization of the Petroleum Exporting Countries’ (:OPEC) fourth largest oil producer.

The Usan project is a joint deepwater offshore development venture in Nigeria aiming to develop the country’s resources. The oil field is expected to have a reserve potential of more than 500 million barrels of oil. The project will employ a floating production, storage and offloading (:FPSO) vessel with a storage capacity of two million barrels of oil. The vessel is designed to process 180,000 barrels per day and its size (320 meters long and 61 meters wide) makes it one of the biggest vessels of its kind in the world.

Discovered in 2002, Usan lies in water depths ranging between 750 meter and 800 meter in Oil Mining Lease (:OML) 138 and approximately 62 miles (about 100 kilometers) off Nigeria’s coast, south east of Port Harcourt, Rivers State. French oil major, Total SA (TOT) enjoys the operatorship of the project with a 20% interest through its subsidiary −Total E&P Nigeria Limited. Other partners include the Nigerian subsidiaries of ExxonMobil with 30% interest, Chevron Corporation (CVX) with 30% share and Nexen Inc. (NXY) with 20%.

ExxonMobil remains upbeat in both shallow water shelf as well as deepwater acreage offshore Nigeria where it holds interest in seven blocks. In the deepwater, the company also holds the operational interest in Erha and Erha North fields and generates volumes from the Bonga field. ExxonMobil’s net production averaged 391 thousand barrels per day in offshore Nigeria as of 2010.

The company boasts of diversified operations across the world with several new projects coming online through 2013. While Exxon functions in all corners of the globe, the main areas of focus, for new volumes, in the coming years include the U.S., Canada, Kazakhstan, Nigeria, Australia, Russia, Angola and Iraq. In the exploration front, it includes unconventional natural gas across North America as well as offshore regions, including the Gulf of Mexico. Hence, we believe that the super major will retain its leverage to higher oil prices going forward given its significant share in the upstream business.

However, we remain skeptical following the company’s fourth-quarter 2011 production level, which declined almost 9% year over year. Hence, we maintain our long-term Neutral recommendation on the company. ExxonMobil holds a Zacks #3 Rank, which translates into a short-term Hold rating.

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