http://articles.moneycentral.msn.com/Investing/JubaksJournal/IsExxonMobilsFutureRunningDry.aspx?page=all
By Jim Jubak
Are we witnessing the death of ExxonMobil (XOM, news, msgs)?
Strange question to ask with oil above $120 a barrel and ExxonMobil
reporting $11 billion in first-quarter profits?
Not if you understand that ExxonMobil's management has bet the
company. If that bet is wrong, over the next 15 years or so, investors
will get to watch the gradual disappearance of ExxonMobil.
In one scenario, the company disappears as a public company, going
private by 2018 after buying up all its public stock. In another, the
company simply liquidates as it distributes its cash to shareholders
until there's nothing left.
Far-fetched? Not at all. The warning signs were pasted all over the
company's May 1 earnings report.
Yes, revenue for the quarter was up 34%, to $117 billion, from the
first quarter of 2007. And, yes, net income climbed 17%, to $10.9
billion.
But production of oil and natural gas was down almost 6%.
Why falling production?
ExxonMobil had an explanation, of course. The company's lower
production was a result of resource-rich countries' demands for bigger
shares of oil and natural-gas production as prices climbed, the
decline of older fields and the loss of production when Venezuela
nationalized ExxonMobil operations in that country in 2007.
All true. There were short-term, one-time reasons for production to
fall in the first quarter of 2008. But don't conclude that
ExxonMobil's problems are limited to that quarter. All the evidence
argues that the company will report lower oil and natural-gas
production for all of 2008, even though new projects are scheduled to
come on line in the second half of the year. Looking just at oil, the
company's production will not grow at all through 2012.
How do we know? Because that's what the company told Wall Street at
its March 2008 annual meeting with analysts. You should know as well
that the company's projections have a history of being too optimistic.
So there's a good chance that when ExxonMobil actually reports
production for that period, investors will see not flat but falling
oil production.
Proven reserves declining
The company also reduced its projections for annual production to 4.5
million barrels of oil equivalent a day in 2012 from the 4.8 million
barrels a day in 2011 that it projected a year ago. Just further
evidence that ExxonMobil has a production problem.
But falling production is only part of the problem, the consequence
today of a longer-term problem that seems to worsen each year. You
see, not only is production likely to stay flat or fall through 2012,
but proven oil and gas reserves are declining. Proven oil and gas
reserves fell by 3.1% at year-end 2007 from the end of 2006, according
to Standard & Poor's.
|
