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ExxonMobil open to acquisitions: Update 2

02 Mar 2016 23:01 GMT
ExxonMobil open to acquisitions: Update 2

Adds chief executive's comments on output growth, M&A and impairments.

New York, 2 March (Argus) — ExxonMobil said it would cut its spending in 2017 amid lower crude prices and kept open the option for potential acquisitions.

ExxonMobil is looking to acquire assets but bids and offers "have yet to come in line," chief executive Rex Tillerson said at the company's annual analyst meeting at the New York Stock Exchange. Tillerson recited a now-familiar refrain among oil executives that volatile crude prices have squelched potential mega-deals, rather than unleash a wave of acquisitions as some analysts had predicted. "We are patient, we not in a rush," Tillerson said.

"It is like buying a home with a huge mortgage," Tillerson said. There is still "tension between value that has changed and expectations that have not changed."

ExxonMobil is still smarting from its ill-timed purchase of independent gas producer XTO in 2010 for $31bn plus debt. US natural gas prices turned negative soon afterward and hit ExxonMobil's profits.

ExxonMobil cut its natural gas reserves, primarily in the US, by the equivalent of 834mn boe last month. Many of those reserves were acquired through the XTO purchase.

"We are in a depletion business. Just staying flat, when you are running a depleting business, that is quite an accomplishment," Tillerson said. "That just tells you hard it is to hold your own."

ExxonMobil replaced 67pc of its reserves in 2015, the lowest rate in 22 years, as proven natural gas reserves were cut because of lower prices.

But the reduced level has not diminished the quality of its assets, he said. "Our future opportunities remain strong," he said.

As a result of the reduced spending, the company tempered its output growth target, to 4mn-4.2mn boe/d through 2020 at $40-$60/bl Brent. That compares with an output of 4.1mn b/d in 2015. In its analyst meeting last year, the firm stuck to its output guidance of 4.2mn boe/d for 2016 and 4.3mn boe/d in 2017, up from 4mn boe/d in 2014.

"The adjustment is really reflective of the pace of some investments that were in the plan last year, which were not this year and a fair amount of that is North America," Tillerson said. "How much do you want to push a rope to a market that simply does not need it."

It will focus onlow-cost fields and a mix of "high quality and diverse drilling inventory" to raise output by 200,000 boe/d by 2018 if the market conditions change.

He also said the company does not target output growth for the sake of growing output. "Volumes will be what the volumes are," Tillerson said.

ExxonMobil said it said it is on track to start 10 new upstream projects in 2016-17, adding 450,000 b/d of oil equivalent (boe/d) of output.

"We have the financial flexibility to pursue attractive opportunities and can adjust our investment program based on market demand fundamentals," Tillerson said.

ExxonMobil raised $12bn by selling bonds, with maturities ranging from 2018 to 2046. The offering comes a year after the major raised $8bn in its largest ever bond offering in 2015. "The money raised will be used for future investment. If we need to borrow, we are borrowing because we got opportunity to put that money to work," he said. "We will not borrow to write a check to somebody."

In its US shale operations, it expects to "enhance position through trades and farm-ins," it said. Near-term focus would be on the Permian and Bakken shale basins, in which the major enjoys low development and operating costs. The major holds 2.1mn net acres in the two areas, with current net output of 220,000 boe/d.

The major has improved profitability of its unconventional portfolio, by lowering development costs and improving well recovery. Operating costs have fallen below $10/bl of oil equivalent (boe) in the Bakken and the Permian, he said. It has lowered its rig count in the US shale by 60pc from the peak in 2015.

Tillerson said ExxonMobil does not plan to take any impairments.

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