Friday, June 15, 2012

ExxonMobil Spends $100M Every Day for Capital and Exploration, On Our Behalf as Consumers

"Big Oil" has to make "Big Investments" in exploration and capital equipment to earn those "Big Profits"

We hear a lot from the media and politicians about the "big profits" of "Big Oil" companies like ExxonMobil, which earned $9.45 billion in the first quarter of 2012, and $41 billion last year.  But the media never covers the "big investments" companies like ExxonMobil make, which are almost equal to the profits it earns.

For example, ExxonMobil spent almost $9 billion on "capital and exploration" from January to March this year (compared to $9.45 billion in profits), and almost $37 billion last year (compared to $41 billion in profits).  In other words, ExxonMobil spends $100 million every day trying to find more oil and natural gas in North America, but also in remote parts of the world like Western Siberia in Russia.  And then once it discovers new energy resources, companies like ExxonMobil have to invest billions of dollars in expensive, sophisticated capital equipment to drill and extract the oil, and then billions more transporting and refining crude oil, with the ultimate goal being to provide you with affordable gasoline when you stop at your local gas station to fill up.  

Here's a WSJ news report today that highlights ExxonMobil's ongoing efforts to find additional oil and gas around the world, largely on your behalf as a consumer of ExxonMobil's products:

"Exxon Mobil said Friday it agreed to develop so-called tight oil reserves in Western Siberia with Russian state oil and gas company Rosneft, in the Texas company's latest effort to replicate the U.S. shale boom globally and gain access to one of the world's largest untapped oil fields. Exxon and Rosneft would use technology that the U.S. oil company already employs in unconventional oil and gas formations in the U.S. and Canada. The companies expect to approve in the near future geological studies and drilling for selected blocks in the Bazhenov and Achimov reservoirs.  The Bazhenov Shale is believed to hold many times more oil than the prolific Bakken Shale in North Dakota and it has the potential to be one of the world's largest sources of shale oil.

Exxon Mobil will finance the geological studies and exploratory drilling, which is expected to begin in 2013. The agreement is the latest chapter in a long-term strategic deal that includes offshore exploration of massive energy reserves in Russia's Arctic Sea and the Black Sea. The venture comes at a time when Exxon has been increasing its foothold on unconventional oil and gas development, not only in North America, but all over the world.

The company--which is exploring for shale oil and gas in Germany and Argentina--recently revealed it will also develop tight oil in Colombia and that it was evaluating the potential of shale oil and gas in China. Exxon has said a key component of its $25 billion acquisition of shale producer XTO Energy in 2010 was transferring the know-how that allowed the company to unlock vast new reserves of natural gas in the U.S. via hydraulic fracturing."

Bottom Line: When we think about "Big Oil" and their big profits, we shouldn't neglect the "Big Investments" those companies have to make to be able earn those profits. In just the few minutes it took you to read this post, just the one "Big Oil" company ExxonMobil Corporation spent about one-quarter of a million dollars on "capital and exploration," basically on your behalf as a consumer, and on the behalf of your children and your grand-children as consumers, to ensure that American consumers will have a constant, dependable supply of affordable energy for many generations in the future. 

17 Comments:

At 6/15/2012 5:21 PM, Blogger seekingtraceevidence said...

Especially nice post. Comprehensive.

 
At 6/15/2012 6:15 PM, Blogger Mark J. Perry said...

Thank you.

 
At 6/15/2012 6:59 PM, Blogger Larry G said...

This comment has been removed by the author.

 
At 6/15/2012 11:06 PM, Blogger Hydra said...

"Exxon Mobil said Friday it agreed to develop so-called tight oil reserves in Western Siberia with Russian state oil and gas company Rosneft, in the Texas company's latest effort to replicate the U.S. shale boom globally and gain access to one of the world's largest untapped oil fields. Exxon and Rosneft would use technology that the U.S. oil company already employs in unconventional oil and gas formations in the U.S. and Canada.

================================

Yup, there is no problem with peak oil. Thats why they are spending allthis money on unconventional deposits.

 
At 6/16/2012 4:29 AM, OpenID moneyjihad said...

Meanwhile, your federal government spends $100M every day on waste, fraud, and abuse, against our behalf as citizens.

 
At 6/16/2012 10:15 AM, Blogger Scott Drum said...

The only reason you would make Big Investments is the expectation of Big Profits. Unless, of course, you are "investing" other people's money in solar panel producers.

 
At 6/16/2012 11:39 AM, Blogger juandos said...

"Unless, of course, you are "investing" other people's money in solar panel producers"...

Hmmm, Sen. Jim Demint had something to say about that awhile back...

Gotta love that Keynesian Lunacy...

 
At 6/16/2012 3:05 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 6/16/2012 3:07 PM, Blogger Ron H. said...

"Meanwhile, your federal government spends $100M every day on waste, fraud, and abuse, against our behalf as citizens."

If $36.5bn/yr in waste was the only problem, I would be much happier.

 
At 6/16/2012 3:29 PM, Blogger Ron H. said...

juandos

"Gotta love that Keynesian
Lunacy...
"

Broken link.

 
At 6/16/2012 7:36 PM, Blogger VangelV said...

For example, ExxonMobil spent almost $9 billion on "capital and exploration" from January to March this year (compared to $9.45 billion in profits), and almost $37 billion last year (compared to $41 billion in profits). In other words, ExxonMobil spends $100 million every day trying to find more oil and natural gas in North America, but also in remote parts of the world like Western Siberia in Russia. And then once it discovers new energy resources, companies like ExxonMobil have to invest billions of dollars in expensive, sophisticated capital equipment to drill and extract the oil, and then billions more transporting and refining crude oil, with the ultimate goal being to provide you with affordable gasoline when you stop at your local gas station to fill up.

The fact that Exxon has to invest so much to get so little shows just how desperate it is and just how much trouble it has with reserve declines. Once the shale write-offs begin expect to see the large companies start to cough up some blood and take a beating in the market.

 
At 6/17/2012 12:50 PM, Blogger marmico said...

ExxonMobil Spends $90M Every Day for Dividends and Stock Buybacks*, On Our Behalf as Consumers

What, you're supposed to have empathy for the shareholders?

*dividends = $2.7 billion quarterly
stock buy backs = $5.5 billion quarterly

 
At 6/17/2012 2:26 PM, Blogger marmico said...

XOM capex is off the table in Poland. XOM shelves the shale gale.

Similar percentage cut to the resource base in the Marcellus, I guess.

 
At 6/18/2012 10:16 AM, Blogger Jet Beagle said...

This comment has been removed by the author.

 
At 6/18/2012 10:18 AM, Blogger Jet Beagle said...

vangeiv: "Once the shale write-offs begin expect to see the large companies start to cough up some blood and take a beating in the market."

Exxon has been making many billions in profits for many decades. And they've done so without paying any attention whatsoever to VangeIV's expert guidance. Amazing!

So, vangeIV, did you put your money where your mouth is and short XOM?

 
At 6/18/2012 10:44 AM, Blogger VangelV said...


Exxon has been making many billions in profits for many decades. And they've done so with paying any attention whatsoever to VangeIV's expert guidance. Amazing!


Exxon has yet to make a dime from shale. While acquiring shale gas properties serves a purpose because the 6:1 boe conversion factor can be used to hide depletion of conventional reserves for a while there is no way that Exxon can generate positive cash flows from those properties. Eventually it will have to restate its gas reserves due to the economic issues that it faces but the company is hoping that by the time that happens there will be a spike in oil prices due to a realization that we are on the back end of Hubbert's Peak.

 
At 6/18/2012 10:49 AM, Blogger VangelV said...

So, vangeIV, did you put your money where your mouth is and short XOM?

Not at all. I do not use short positions. As an optimist I like to be long asset classes that I consider undervalued. For the record, I like oil and gas companies. What I don't like is the shale sector because it is not self financing.

 

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