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Why Exxon’s Stock Could Hit $100 In 2020

Oil and gas giant ExxonMobil…

Gregory Brew

Gregory Brew

Dr. Gregory Brew is a researcher and analyst based in Washington D.C. He is a fellow at the Metropolitan Society for International Affairs, and his…

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Will Exxon’s New $20 Billion Strategy Pay Off?

ExxonMobil, the U.S. energy giant, has taken some hard knocks in the last year: a staggering stock price, a massive de-booking, a lost AAA credit rating. But early in 2017, with new leadership and a new emphasis on domestic U.S. projects, Exxon’s fortunes may be improving, in no small measure thanks to its allies in the Federal Government and its growing investment in U.S. shale.

ExxonMobil CEO Darren Woods announced on Monday at the CERAWeek conference in Houston TX that the company will be making further investments in U.S. shale oil and gas, laying out a $20 billion “Growing the Gulf” initiative that seeks to invest in chemical, refining, lubricant and LNG projects along the Texas and Louisiana coast.

The new project indicates a further shift for Exxon, away from international projects and towards a focus on domestic endeavors, specifically those involving shale oil and gas. The $20 billion “Growing the Gulf” program comes a few months after acquisitions in the Permian Basin, the fastest-growing area for shale producers, totaling $5.6 billion. Last week Exxon disclosed that it was shifting half its drilling budget to the U.S., in order to exploit its new acreage in the Permian.

Exxon’s strategy, according to Woods, is to leverage the shale oil and gas boom into expanded manufacturing and new U.S. exports. Woods, whose background is in downstream activities, wants to emphasize this aspect of the company’s business in part for the political benefits: The Trump Administration’s focus on expanding U.S. exports and building American infrastructure in order to produce new jobs clearly factored into Woods’ address, which emphasized the “thousands and thousands” of new manufacturing and highly-skilled jobs the initiative would produce. Related: Goldman Sachs Sees ‘’Long-term’’ Oil Prices Below $60

Exxon’s announcement garnered an optimistic endorsement from President Donald J. Trump via Twitter. The President went so far as to put out a short video praising Exxon’s role as a job creator. Exxon’s investment is expected to produce 45,000 jobs over a ten-year period.

Woods is branding the project as a new initiative is a bit disingenuous. As Bloomberg pointed out, Exxon’s investments in the Gulf have been on-going since 2013, before the oil price collapse. Woods, who had spoken in public as Exxon CEO only once before making Monday’s announcement, took over in January as former CEO Rex Tillerson joined the Trump Administration as Secretary of State. Woods did not acknowledge how new projects would be integrated into Exxon’s pre-existing investments in the region, which are already on target to boost downstream activities and provide thousands of new jobs.

In the last twelve months Exxon has taken some significant hits. In November, it was forced to de-book its reserves in the Canadian oil sands, citing the low price of crude. The venerable oil and gas giant lost its AAA rating from Standard and Poor in April 2016, which thought a symbolic loss (it shared the rating with Microsoft and Johnson&Johnson) indicated the damage wrought by years of low prices and some pretty terrible luck, notably Tillerson’s lost $500 billion deal in Russia as the result of Western sanctions. Related: Could This Be The Biggest NatGas Find Of The Decade?

Yet the shift in investment focus is part of a wider strategy, not just Woods’ pursuit of political capital or his eagerness to show his differences from Tillerson. The last several months has seen Exxon shift its focus from long-term, international projects to short-term plays on the U.S. patch, as Bloomberg noted. Exxon, a latecomer to shale, is now positioned as one of its biggest players, with Tillerson’s acquisition of XTO Energy in 2010 the first sign of its growing recognition of the sector’s importance. Woods last week announced Exxon’s plans to spend $5.5 billion on drilling in the Permian and Bakken regions. The company’s production goal is set between 4 and 4.4 million bpd, a relatively modest target.

With “buy” ratings from investors at an all-time low and its reputation tarnished by a run of bad luck, Exxon is looking for a new approach to rebuild confidence. The strategy, as well as the PR surrounding the “Growing the Gulf” initiative, indicates a company that recognizes the changes in the political climate as well as the energy market. Short-term investments look like a safer bet when the price is hovering near $50, with OPEC cuts matched by increases in U.S. shale production, and where an imminent boom or bust may be right around the corner.

After several decades of shunning the U.S. and Latin America for Asian and African riches, ExxonMobil’s new approach signals both a shift in tactics and branding. It is also a recognition of the staying power of U.S. shale, which years after its arrival on the scene has maintained its relevance.

By Gregory Brew for Oilprice.com

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  • Lee James on March 07 2017 said:
    Bringing in the oil is a challenge. The USA competes with sovereign states where the price of oil mostly has to do with the cost of government. They guardedly shepherd underground pools of oil in keeping with the oil's life-blood status. Since we do not control other countries as much as we used to, we now turn inward where political risk and military conflict is less.

    We really want domestic oil to work for us, but we do not have a guarantee -- it depends. Depends on the price of oil and how the diffuse, tight-oil gathering process goes. Estimating the quantity and production cost of unconventional crude is difficult.

    Not sure how realistic we are about our domestic crude future. EM already took a big hit with its reserves estimates, particularly with tar sands.

    I just hope that our country keeps its energy options open and does not forever equate "energy" with petroleum. What is our energy future, and will we have clean-energy jobs?

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