Posts under ‘Exxon Mobil’

The Motley Fool

By David Lee Smith
March 18, 2010

In the hierarchy of Big Oil, I don’t have to work up a sweat to place ExxonMobil (NYSE: XOM) overall in first place — both qualitatively and quantitatively — while for several years now, Royal Dutch Shell (NYSE: RDS-A) has brought up the rear.

BP leads the way
That’s not to say, however, that the companies can’t change positions, much like NASCAR participants, passing one another when things are going especially well, or falling behind when bad luck hinders them. Take BP (NYSE: BP) for instance. It wasn’t long ago that the company was simultaneously trying to fend off the ramifications of a lethal explosion at a Texas refinery that killed 15 and injured scores of others, all while dealing with leaks in its Alaska pipelines. At about the same time its Indiana refinery was shut down by a fire, and an abrupt top management change all seemed to leave the company even further behind the eight-ball.

But in just the past couple of years, CEO Tony Hayward and the team he’s assembled have BP roaring back. In fact, the company is as clear-cut a demonstration as I can conjure up of the real value of quality management to corporate success. And now it appears that Shell, which until recently couldn’t find oil in a Jiffy Lube, may be following in the footsteps of its European rival.

And here comes Shell
If, as this week’s version of the company’s annual strategy session appeared to indicate, Shell is shedding its ineptitude, still new CEO Peter Voser will have performed a miraculous feat. After all, this is the same company that in 2004 admitted to overstating its reserves by 20%, or about 3.9 billion barrels. The result for the company was a fine of more than $350 million, plus administrative costs and other charges, along with the termination of several top executives.

And then there’s been the company’s geologic incompetence. As you know, one of the keys to judging an oil and gas producer involves the percentage of its production it’s able to replace each year. For instance, Exxon replaced 133% of its production in 2009, departing the year with more reserves than it started off with. From Shell’s perspective, as recently as 2007, the company replaced a shameful 17% of its production. In 2008, it replaced just 98% of its output.

Like a new company
Then came 2009 and surprise stardom for Shell. Believe it or not the company’s reserve-replacement ratio reached a whopping 288%, the highest in the industry. And while that ratio hasn’t yet manifested itself in Shell’s financials, in my opinion, Mr. Voser and his team have set the stage for some solid results going forward. For instance, next year two huge projects in Qatar — the Pearl Gas-to-Liquids project and Qatargas 4, a massive liquefied natural gas project — will come on stream. Also an expansion of the Canadian oil sands project that it shares with Chevron (NYSE: CVX) and Marathon (NYSE: MRO) will likely start up in the next couple of years. As Mr. Voser told the assembled analysts, the result could be an impressive 11% increase in barrels of oil equivalent production by 2012.

And it wasn’t just the discovery of 2.4 billion barrels of oil equivalent, its top performance of the past decade, that made 2009 the company’s turnaround story so strong. In addition, cost cutting received plenty of attention. By laying off 5,000, or 5%, of its employees, along with taking other measures, Shell was able to save $2 billion in expenses during the year. Further, it appears that the company is far from through in the fat-trimming department. Indeed, Mr. Voser stated during the session that another 2,000 Shell hands will be laid off by the end of next year.

Wanna buy a refinery?
Beyond that, there obviously will be asset sales as well. A month ago, rumors were rampant that the company was looking to dispose of about $10 billion worth of its properties, potentially including oilfields in the North Sea, three refineries in Europe, onshore acreage in Nigeria, and retail outlets in Africa. Whether or not that target number is accurate, the company made it clear on Tuesday that there will be refineries and retail facilities on the block.

Clearly this is not the ideal time to be in the refinery business, and, with margins having withered in that sector, all the integrated companies, from ExxonMobil on down, are struggling with their downstream operations. In fact, companies like France’s Total (NYSE: TOT), along with several other members of the Big Oil fraternity appear intent on cutting refinery capacity, and ConocoPhillips (NYSE: COP) may sell some small units.

So all in all, it’s not solely because spring is arriving that I recommend that Fools do some “Shelling.” There could be some money to be made in this clear-cut turnaround situation.

SOURCE ARTICLE

March 16, 2010

David Wighton: Business Editor’s commentary

He arrived with a bang and within weeks had axed 5,000 jobs. But eight months after taking over the helm at Royal Dutch Shell, is Peter Voser making progress turning around the supertanker?

Long derided as the most sluggish of the top oil companies, Shell will today try to persuade investors at its annual strategy briefing that it is back on course. There certainly are some encouraging signs. For six years, oil production has been drifting lower at an average of 3.5 per cent a year. But with a series of big projects due to give the figures a boost this year, production is expected to stabilise at about 3.2 million barrels a day in 2010. In 2011 it could start growing for the first time in almost a decade.

Mr Voser can claim only limited credit for this trend, which reflects years of investment. But his own changes are starting to have an impact, in particular a sweeping reordering of the company that has reduced costs and improved focus.

For years, Shell was plagued by delays and budget overruns on big projects. So far, his creation of a separate division, Projects and Technology, responsible for masterminding large-scale operations, seems to be working well. Compared with peers such as Exxon and BP, Shell has been slow to make such changes, but that means the potential for improvements is greater.

Mr Voser has promised at least another $1 billion in cost cuts this year and will provide further details today.

He is still grappling with huge challenges — not least Shell’s sprawling refining and marketing operation, which is struggling in the face of the industry’s most severe downturn in 20 years. The group’s poor record at finding new supplies of oil and gas also remains a profound problem which Voser must address.

Still, his decision to sell some of Shell’s onshore Nigerian assets and bid for Arrow Energy, an Australian producer of coal-seam gas, show that he is willing to give the portfolio a good shaking. It will be years before Mr Voser’s performance can be judged properly — but so far so good.

david.wighton@thetimes.co.uk

TIMES ARTICLE

Shell’s oil facilities in the Niger Delta have suffered from a number of criminal and militant attacks, leading Peter Voser, chief executive officer, to declare that the country is no longer a key area for growth.

BP PLC’s $7 billion deal with Devon Energy Corp should help dispel some of the misgivings that have weighed on the British oil major’s stock in recent years—particularly doubts about its ability to keep pumping more and more oil.

LONDON—BP PLC on Tuesday said it is pushing through the biggest shake-up of its oil-production business since it acquired Amoco 12 years ago, as it seeks to increase annual profits by more than $3 billion over the next two to three years.

ABUJA, Nigeria — Nigeria’s acting president on Monday called for the passage of a bill that analysts say would sharply reduce the profits of foreign oil companies.Acting President Goodluck Jonathan said the Petroleum Industry Bill before lawmakers would allow more oil money to return to Nigeria’s people. The bill would also require the government-run Nigerian National Petroleum Corp., to seek profits like a private business and not rely on government subsidies.

Financial Times

February 22, 2010 7:56pm

by Ed Crooks

FULL FT ARTICLE (SUBSCRIPTION)

When the recession hit, the major companies streamlined, cut costs and became more efficient, giving them a shot at a profit comeback

By BRETT CLANTON
HOUSTON CHRONICLE

Feb. 21, 2010, 4:32PM

Big Oil has had a little less swagger in its step of late, humbled by a global recession that halted a multi-year run of soaring profits and exposed weaknesses that had been less acute when times were good.

International giants like Exxon Mobil and BP have suffered the effects of the economic downturn, which brought the first significant decrease in global energy demand in nearly three decades, created wild gyrations in oil and natural gas prices and wreaked particular havoc on the oil refining business.

But they responded in different ways. Some took a hard look at organizational structures and cut thousands of jobs. Others pared portfolios to pay debts and refocus on core businesses, while at least one took advantage of the depressed climate to boost spending and make a major acquisition, even as profits tumbled.

“The majors weathered the storm in 2009, but I would also say it made them more efficient, more focused,” said Gary Adams, vice chairman of Deloitte’s oil and gas practice in Houston.

The biggest international oil companies will likely continue to face tough conditions in oil refining this year, amid still-weak demand for gasoline and other fuels, rising crude prices and surplus plant capacity.

The natural gas business also remains challenging in the short term, as does the task of trying to lure back investors who recently have been more enamored of shares in smaller, faster-growing oil and gas firms.

Add broader concerns about the slow pace of economic recovery, the increasing difficulty in accessing new oil and gas resources and the possibility of new, costly regulations on the industry, and the outlook grows cloudier still.

Majors have advantage

Yet, the oil majors — with their diverse integrated business models, big balance sheets and cautious approach to investing — still may be among the best equipped in the industry to ride out what’s ahead.

“That’s partly why they’ve gotten to be as big as they are,” said Ken Medlock, a fellow in energy studies at Rice University’s Baker Institute.

Or, as Kenneth Cohen, Exxon Mobil’s vice president for public and government affairs, put it recently, “It’s really these times that our company and our business model are designed to handle.”

In recent years, rising oil and gas prices drove profits of the five biggest Western oil companies — Exxon Mobil, Royal Dutch Shell, BP, Chevron Corp. and ConocoPhillips — to new heights.

In 2008, when crude oil reached nearly $150 a barrel and retail gasoline topped $4 a gallon nationwide, the companies made a combined profit of $100 billion. That’s the second-highest on record from the group, exceeded only by the 2007 combined total of $123 billion. But the global economic crisis changed all that and in 2009 slashed the group’s combined haul to $61 billion.

In response, the majors have taken steps to cut costs and streamline operations.

• • Shell, under a sweeping reorganization launched in July by new CEO Peter Voser, cut 5,000 jobs last year, including hundreds in Houston, and aims to eliminate an additional 1,000 positions this year. It’s also reviewing 15 percent of its non-U.S. refining capacity for possible sale.

• • BP has shed 7,500 employees since late December 2007 under an ongoing turnaround program led by CEO Tony Hayward, who said this month the British oil giant still has a way to go in becoming more competitive.

• • ConocoPhillips, Houston’s largest public company, plans to sell $10 billion in assets over the next two years to help pay debts and improve financial flexibility. Separately, the company recently said it may consider closing refineries that can’t cover their costs.

• • Exxon Mobil, the biggest U.S. oil company, has shed global refining assets in recent years, and officials said it will continue to “optimize” its downstream portfolio, but it doesn’t see any need for a major restructuring.

• • Chevron Corp., after cutting expenses 15 percent in 2009, is planning a reorganization of its global refining business, which will result in an unspecified number of job losses. It has also cut its 2010 capital spending budget by 5 percent.

‘Becoming leaner’

Many of the moves were tied directly to the global collapse in refining, but the poor economic environment also gave some companies cover to take an ax to organizations that had grown too big or complex.

“A lot of this is eliminating redundancy, becoming leaner, and that’s important, particularly in an environment where costs are as high as they are,” Medlock said.

Recently, however, stabilizing global economic conditions and higher oil prices have helped stoke investment and are buoying hope of a recovery.

Spending on exploration and production, excluding acquisitions, is expected to rise by 7 percent to $326 billion in 2010 among more than 65 of the largest publicly traded oil and gas companies, according to a recent report by Norwalk, Conn.-based energy research firm IHS Herold. That compares with a 23 percent decline in upstream spending in 2009.

Also this year, majors likely will be on the hunt for acquisitions, particularly those that expand their holdings in North American natural gas shale plays, like Exxon Mobil’s recent deal to purchase Fort Worth’s XTO Energy for $41 billion.

“Unconventional gas is still where a lot of the action is going to be,” said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates in Cambridge, Mass.

Not only are such deals a strategic bet the world will move toward cleaner fuels, they could help majors regain the attention of investors who have recently rewarded independent oil and gas producers for leading the way in shale and other unconventional gas plays.

In 2009, Standard & Poor’s Oil and Gas Exploration index — a basket of stocks that includes names such as Anadarko Petroleum, Apache Corp. Devon Energy and Southwestern Energy — grew 41 percent. By contrast, a Standard & Poor’s index that tracks the majors fell 4 percent.

But there is another possible explanation for the majors’ renewed interest in North American gas plays. With access increasingly limited to new oil and gas reserves around the globe, they’re simply running out of places to invest.

“All of the sudden, North America looks very attractive relative to other opportunities out there,” said Fadel Gheit, industry analyst with Oppenheimer & Co. in New York.

“It’s the devil you know versus the devil you don’t know,” Gheit said, “and they know this devil pretty well.”

brett.clanton@chron.com

SOURCE ARTICLE

The Times
February 17, 2010

Robin Pagnamenta and Robert Lindsay

Royal Dutch Shell said that it would freeze the salaries of its top directors and reform a generous bonus scheme as the oil giant moved to soothe shareholders’ anger over excessive boardroom pay before its annual meeting.

In a letter to investors, Hans Wijers, the new chairman of the Anglo-Dutch company’s remuneration committee, said that the changes were being made after extensive talks with shareholders, 60 per cent of whom voted down the executive pay plans at a stormy annual meeting last year.

The shareholder revolt triggered the resignation of Sir Peter Job, Mr Wijers’s predecessor.

In the letter, Mr Wijers said that Shell would be capping the salaries of its top three executives — Peter Voser, chief executive, Simon Henry, finance director, and Malcolm Brinded, head of exploration — until 2011. He said that Mr Voser had been appointed last July on a salary 20 per cent lower than that of his predecessor, Jeroen van der Veer, who earned $2 million (£1.3 million) in basic pay in 2008 but $15 million in total compensation. Mr Wijers said that Mr Voser and Mr Henry had received pay rises last year but only because they had been promoted to new roles

He also announced plans to scrap a heavily criticised bonus scheme that last year allowed top directors to collect multimillion-pound payouts, even though they failed to meet performance targets.

“I believe it is appropriate in the current economic environment to state up front that no upward discretion will be applied to the Long Term Incentive Plan or Deferred Bonus Plan vesting in 2010. In future, there will be no use of upward discretion in the vesting of these plans without prior shareholder engagement,” Mr Wijers said.

Meanwhile, in an unprecedented move for a global oil group, Mr Wijers unveiled plans to link bonus payouts to Shell’s performance on the Dow Jones Sustainability Index, which ranks corporate performance using a variety of social and environmental indicators, including cuts to carbon emissions.

From 2010, 10 per cent of the targets used to calculate payouts will be linked to the index, with the remaining 90 per cent related to operational and financial performance as well as the delivery of big projects on time and on budget. The key measure in Shell’s bonus plan remains the group’s performance against its peers — BP, Total, ExxonMobil and Chevron.

In another concession to investors, Mr Wijers said that in future Shell’s chief executive would be obliged to have shares in the company equivalent to three times his basic salary, in order “to provide greater alignment with shareholder interests”. The existing guidelines for executive directors are for a holding of two times salary.

Shell’s 2010 annual meeting will be held on May 18.

TIMES ARTICLE

THE NEW YORK TIMES

Energy companies are on the prowl again.

After a two-year slowdown in mergers and acquisitions in the industry, companies are once again looking for ways to use their checkbooks to expand their reserves, buy new technology or snap up promising oil and gas fields.

Unlike the round of mergers that created today’s behemoths in the late 1990s, the current round is not expected to form new giant companies like Exxon Mobil or ConocoPhillips. This time, companies are focused on buying fast-growing small companies, or on acquisitions that expand their reserves in an era when it is hard for them to find new places to drill.

The targets include companies that own new fields in nations like Ghana and Sierra Leone, independent gas producers in the United States, and companies that control fields in the deep waters of the Gulf of Mexico.

“In this industry, where you’re in the business of increasing your reserves, there are two ways to do so — to drill or to acquire,” said Christopher W. Sheehan, director for mergers and acquisitions research at IHS Herold. “There is an intense competition for access to resources through mergers.”

This latest wave of consolidation comes amid fresh enthusiasm for natural gas production, especially in the United States, where new technology has significantly expanded the nation’s reserves. The huge potential of new gas fields has driven most mergers in the North American energy sector in recent months, with more to come this year, according to bankers and analysts.

Buying interest is particularly strong among the international oil majors, which had sold off many of their onshore assets in the United States over the last decade and are now eager to come back. Anthony B. Hayward, the chief executive of BP, said last month at the World Economic Forum in Davos, Switzerland, that the gas being extracted from beds of shale was “a complete game-changer. It probably transforms the U.S. energy outlook for the next 100 years.”

The biggest deal in that sector was announced in December, when Exxon Mobil said it would buy XTO Energy for $31 billion. Shortly after, Total of France said it would pay $800 million for a minority share in Chesapeake Energy’s Barnett shale gas portfolio. Chesapeake has raised about $11 billion from joint ventures for its shale gas assets in the last two years; BP and Royal Dutch Shell have struck similar agreements in recent months.

In a humorous note to investors, Bernstein Research analysts quipped recently: “Frankly, you can virtually plan your gym sessions around these deals, they are becoming so regular. Thinking about it, isn’t it about time for another Statoil deal?”

Statoil, the Norwegian national oil company, recently struck a deal with ConocoPhillips to trade some of its assets in the Gulf of Mexico for acreage that Conoco holds in the Chukchi Sea of Alaska; in November, Statoil agreed to pay $3.4 billion for a 32.5 percent stake in Chesapeake’s assets in the Marcellus shale formation in the Appalachian region.

“The growth opportunities from shale gas are something we haven’t seen in the United States for decades,” said Roger D. Read, managing director and senior energy analyst at Natixis Bleichroeder in Houston. “The United States, which had been a static market, now has the chance to grow its production.”

Bankers and energy consultants expect deals to pick up this year after a two-year lull. There were 244 deals in the global oil and gas industry last year, down from 285 in 2008, and 336 at the peak in 2007, according to data from IHS Herold, a consulting and advisory firm.

While the number of transactions was down, the size of the Exxon-XTO transaction helped raise the total value of last year’s mergers to $144 billion, up from $104 billion in 2008. (Merger values peaked at $200 billion in 1998, a year when many of today’s giant companies were created.)

Analysts point to a wide range of companies that are potentially on the market, including EOG Resources, Southwestern Energy, PetroHawk Energy, the Encana Corporation, Chesapeake Energy, Devon Energy and Anadarko Petroleum.

“There will be a shakeout there. It will be eat, or be eaten,” said James Bogues, who leads Accenture’s North America energy mergers and acquisition unit. “Given Exxon’s reputation as a very deliberate, cautious company, the fact they made such a bold move with XTO will no doubt inspire others that a price has been set for shale gas assets and technology.”

Outside of the United States, the pace of mergers has also picked up. Suncor Energy of Canada bought Petro-Canada in a deal valued at $18 billion at the time to form a national giant and stave off possible bids from foreign buyers, particularly Chinese companies. In West Africa, Exxon has offered $4 billion for a stake in an offshore field in Ghana, though that deal could fall through given the government’s threat to block the transaction; international firms, including Eni of Italy, are battling over some prospective fields in Uganda.

Chinese companies have also been particularly active. In August, Sinopec, one of China’s biggest oil companies, closed a $9 billion acquisition, buying Addax Petroleum, a Geneva-based oil explorer that is most active in Nigeria, Gabon and the Kurdistan region of Iraq.

Sinopec, formally known as the China Petroleum and Chemical Corporation, said the deal “represents the largest successful acquisition of overseas oil and gas assets by a Chinese company.”

The interest of national oil companies, like Sinopec, could prove a powerful and lasting driver for merger deals in the energy sector.

“The mandate of national oil companies is to go and find reserves around the world,” said Jon McCarter, the oil and gas transactions leader for the Americas at Ernst & Young. “They have been very active and very aggressive.”

NYT ARTICLE