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Exxon, Chevron Count Every Dollar to Protect $40 Billion Hoard

By Joe Carroll

March 25 (Bloomberg) — Exxon Mobil Corp. and Chevron Corp., their coffers swollen by last year’s record oil prices, are maneuvering to preserve a combined $40 billion in cash amid a global financial crisis that roiled the banking system.

Exxon Mobil Chief Executive Officer Rex Tillerson says he checks in every night with Treasurer Don Humphreys to make sure the money is still there. The largest U.S. oil producers won’t say where they’re putting cash, even as both acknowledge going to greater lengths than in the past to protect their funds.

“Relative to the financial markets, the biggest challenge we’ve had is making sure all the cash is there every morning,” Tillerson said in a presentation this month to investors and analysts in New York. “I tell Don he has to count every dollar before he goes to bed at night, and he tells me he does.”

The company began shifting cash around last year as prices for credit-default swaps signaled greater risk of collapse at some financial institutions, Humphreys said at the same meeting. Cash stockpiles are key to funding capital budgets that total almost $1 billion a week combined at Exxon Mobil and Chevron, especially after crude prices dropped $100 a barrel from 2008’s all-time high, said David Lundberg, an analyst at Standard & Poor’s Ratings Services in New York.

Irving, Texas-based Exxon Mobil, the world’s biggest company by market value, had $31.4 billion in cash and cash equivalents as of Dec. 31, more than Warren Buffett’s Berkshire Hathaway Inc. or Microsoft Corp. Chevron had a $9.3 billion cash hoard, four times its total at the start of the 6 1/2-year bull market for oil that ended in mid-2008.

Exxon’s Moves

“The cash placement has changed dramatically over the last 12 months,” Tillerson said in the March 5 presentation. “We had to make a lot of fairly significant moves very quickly as this whole situation unfolded last year to protect the cash, and we have protected the cash.”

Investing in corporate debt and money-market funds became riskier after Lehman Brothers Holdings Inc. filed for bankruptcy protection on Sept. 15, sending credit markets into a tailspin.

At risk for Exxon Mobil and Chevron is money that could be used for acquisitions. Major international oil producers will likely boost reserves by buying stakes in offshore fields from cash-strapped state oil companies, according to Nansen Saleri, CEO at advisory firm Quantum Reservoir Impact in Houston and formerly reservoir-management chief at Saudi Arabian Oil Co.

Exxon Mobil and Chevron declined to say how their cash is invested or to comment on how it’s managed. Humphreys and Chevron Chief Financial Officer Patricia Yarrington declined to be interviewed for this article.

Government Debt

Many companies with cash on hand now invest in low-risk government securities, according to analysts including Brian Gibbons at CreditSights Inc. in New York. Those investments will be liquid so the money can be tapped quickly when it’s needed, Gibbons said.

Chevron, which halted share buybacks this year to conserve funds, has most of its $9.3 billion cash stockpile outside the U.S., Yarrington said in a March 10 presentation to investors and analysts in New York.

The company is relying on that bankroll to help finance projects such as the Gorgon natural-gas development in Australia. The project is a joint effort with Exxon Mobil and Royal Dutch Shell Plc to liquefy gas from offshore reservoirs for shipment to markets in Asia and elsewhere on tanker ships.

Western Australia Premier Colin Barnett this month said Gorgon will cost A$50 billion ($33 billion). Chevron also is involved in a $13.7 billion expansion of a Canadian oil-sands project and $17.4 billion in developments in West Africa and Brazil. Combined, those outlays would be enough to fund the U.S. space program for more than three years.

Profits Seen Falling

“From a cash standpoint, let me assure you that we’re well protected,” Chevron Chief Executive Officer David O’Reilly said in this month’s presentation. “Our folks have done a tremendous job in looking at where to put our cash.”

Crude prices plunged as recessions around the world crimped fuel demand. Natural-gas futures in New York touched a six-year low on March 18.

Exxon Mobil is still buying back shares, even as analysts predict the largest decline in profit since Exxon Corp.’s 1999 acquisition of Mobil Corp. Chevron’s profit this year will drop 59 percent, according to the average of analyst estimates compiled by Bloomberg.

“The challenge for companies sitting on a lot of cash is to earn the highest return they can,” said Gibbons of CreditSights. “There’s little doubt they are earning less on their cash than they were a year ago.”

Exxon Mobil’s return on its cash fell to 4.3 cents on the dollar last year from 5.4 cents in 2007, public filings showed. The 2008 result was less than one-tenth the 54-cent return on each dollar invested in oil and gas wells.

Chevron earned 2.3 cents per dollar on its cash in 2008, down from 4.3 cents a year earlier. That compared with last year’s 27 percent return on oil, gas and refinery investments.

To contact the reporter on this story: Joe Carroll in Chicago at[email protected].

Last Updated: March 25, 2009 01:00 EDT 


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