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Houston Chronicle: Exxon Mobil plans blitz: Oil giant says it’ll ramp up spending on production and exploration


Exxon Mobil Corp. aims to start more than 20 new global projects in the next three years and increase exploration and production spending this year to cover higher costs of finding oil and natural gas, top executives of the world’s largest oil company told analysts Wednesday in New York.

Exxon Mobil CEO Rex Tillerson said the Irving-based company plans to invest in mature areas of North America, Australia and the North Sea as well as growth areas in the Middle East, Russia, the Caspian area and West Africa.

Other target areas include Singapore, Qatar, Saudi Arabia and China, he said at the company’s annual conference with analysts at the New York Stock Exchange, which also was broadcast over the Internet.

Missing from that list was oil-rich Venezuela, where the company will not try to increase its footprint for the time being, Tillerson said.

“Obviously, given the conditions down there at this time, we are not contemplating any new investments in Venezuela,” Tillerson said.

Exxon Mobil has agreed to transfer control of operations at Mobil Cerro Negro, its heavy tarlike oil production project in Venezuela’s Orinoco River basin to the country’s govern- ment-controlled oil company to comply with Venezuelan President Hugo Chavez’s decree last month.

Chavez, a vocal critic of U.S. policy regarding Latin America, has decreed that Petroleos de Venezuela, or PDVSA, will take majority control of all foreign-run operations in the Orinoco belt in the coming months.

“Market and geopolitical forces continue to shape the environment in which we operate,” Tillerson said.

Exxon Mobil also plans to increase exploration and production spending to nearly $21 billion, a $1 billion jump over its 2006 spending, to cover increased costs of doing business, such as increased rates for too-few drilling rigs to meet industry demand.

“Exxon Mobil is not immune to the cost pressures affecting the entire industry,” said Senior Vice President Stuart McGill, who outlined production plans.

Such pressures include a work force packed with engineers and other professionals headed for retirement in the next 10 to 15 years. Tillerson said Exxon Mobil meets its recruiting targets every year, but “time and time again” challenges younger employees to step into important positions. He said that in the past “that … probably would not have been done, but they rise to the occasion.”

Robert Kessler, an analyst with Simmons & Co. International who attended the meeting, said he took note of how Exxon Mobil faces the same prospect cited by its smaller peers — too few experienced engineers to tackle big projects.

San Ramon, Calif.-based Chevron Corp. and Houston-based ConocoPhillips are scheduled to hold their annual analyst meetings in New York next week.

Tillerson noted the company’s record $39.5 billion profit for 2006, the highest ever recorded by a U.S. company. More than half of last year’s $52 billion in cash flow from operations and asset sales was used to repurchase shares, increasing ownership interest of remaining shares.

The company is buying back $7 billion in shares in the first quarter of this year, but Tillerson declined to say what the buyback rate would be for the rest of the year.

Citigroup analyst Doug Leggate said in a note this week that the company’s consistent performance, deep portfolio and balance sheet strength was a “potent cocktail that in our view is understated in the current valuation.”

Exxon Mobil shares closed up 64 cents at $71.64 Wednesday on the New York Stock Exchange. Shares have traded in a range of $70.56 to $72.86 in the last year.

Regarding issues in Venezuela, Tillerson said the company remains in talks over what kind of compensation PDVSA will offer upon gaining at least 60 percent ownership.

Other foreign operators of Orinoco projects are doing the same but haven’t announced whether they will transfer control of operations.

BP is a minority partner in Mobil Cerro Negro.

Those discussions include whether Exxon Mobil continues as a minority partner in a restructured venture or leaves it altogether, Tillerson said.

An analyst asked whether Exxon Mobil had any concerns about its oil and gas project on the Pacific island of Sakhalin in Russia’s remote Far East. Last December, OAO Gazprom, Russia’s state-owned natural gas monopoly, took control of Royal Dutch Shell’s liquefied natural gas project on Sakhalin.

OAO Rosneft, Russia’s state-owned oil company, is a partner in Exxon Mobil’s Sakhalin project.

Tillerson said Exxon Mobil is comfortable that its communications and relationships are “in good shape.” It aims to invest further in Sakhalin and is eyeing offshore Russia.

“We don’t need to come in and impose ourselves on that,” he said. “We can be patient in that regard because we’ve got a plate full of things to do at Sakhalin.”

March 7, 2007, 10:29PM
Copyright 2007 Houston Chronicle

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