Bloomberg News

Exxon’s Tillerson Needs Record Oil Output to Reach Growth Target

October 27, 2011

Oct. 28 (Bloomberg) -- Exxon Mobil Corp. Chief Executive Officer Rex Tillerson may struggle to reach his full-year production target after rallying oil prices reduced the company’s take from wells in Africa and output slumped in the U.S. and Europe.

Exxon, the world’s largest company by market value, needs to boost production in the current quarter to the equivalent of 5 million barrels a day to meet the 4 percent growth target for 2011 that Tillerson set forth during a March presentation to analysts in New York.

The closest Exxon ever came to pumping that much crude and natural gas was during the final three months of 2010, when daily output reached 4.97 million barrels. Even with new wells in Iraq and Russia adding to the company’s global production, Tillerson may fall short of the mark, said Allen Good, an oil- industry analyst at Morningstar Investment Services Inc. in Chicago.

“I’d be surprised if they hit that number,” Good said during a telephone interview. “They’re having long-term trouble growing oil volumes and I don’t see how they get to five” million barrels a day.

Exxon’s worldwide oil and gas production declined by 3.8 percent during the July-to-September period to the equivalent of 4.28 million barrels of crude a day, the Irving, Texas-based company said yesterday in a statement. It was the lowest output since the second quarter of last year and the largest decline since 2008, according to Bloomberg data.

Production Agreements

When international crude prices rise, energy prospectors such as Exxon receive a smaller portion of output from wells governed by production-sharing contracts in countries like Nigeria. In Africa, which accounts for more than one-fifth of Exxon’s global crude supply, the company’s output tumbled 24 percent during the quarter, the biggest decline anywhere in the world.

In Europe, Exxon’s crude output dropped 16 percent, according to a company statement. U.S. oil production from Exxon wells declined by 5.8 percent. The company boosted crude output in Asia by 7.3 percent to 806,000 barrels a day.

Excluding the impacts of higher crude prices, asset sales and quotas imposed by the Organization of Petroleum Exporting Countries, Exxon’s output was unchanged from a year earlier, David Rosenthal, the company’s vice president of investor relations, said during a conference call with analysts yesterday.

Major Producer

On that basis, Exxon may be able to meet its full-year production forecast, he said during the call. In March, at the company’s annual presentation to the investment community at the New York Stock Exchange, Tillerson forecast production growth of as much as 4 percent this year.

Such a growth rate would translate into full-year average daily output equivalent to 4.625 million barrels, compared with 4.447 in 2010, based on Bloomberg calculations.

Exxon pumps about 3 percent of the world’s oil, producing more than OPEC members such as Kuwait and Algeria, according to International Energy Agency figures. The company’s $396 billion market valuation exceeds the economic output of all but 22 nations.

Exxon is outperforming its biggest rivals, advancing 12 percent since the end of last year. PetroChina Co. and Royal Dutch Shell Plc, the second- and third-largest oil companies by market value, have increased 2.2 percent and 10 percent, respectively.

Exxon abandoned a well in the Turkish sector of the Black Sea during the third quarter that failed to find oil or gas, Rosenthal said yesterday. The dry hole followed recent exploration failures by the company in Brazil, where Exxon is attempting to sell a 25 percent stake in an offshore prospect.

Unconventional Prospects

Tillerson is spending as much as $37 billion this year to search for crude, erect gas-liquefaction plants and expand refineries and chemical plants. The company spent $38 billion in the past 16 months acquiring shale-rock formations and the expertise to crack them as part of Tillerson’s move into so- called unconventional prospects that require intensive drilling techniques.

Exxon also is counting on production increases from mega- projects such as the Kearl oil-sands development in Canada, the West Qurna oilfield in Iraq and Sakhalin-1, an offshore oil and gas project in Russia’s Far East, said Douglas Ober, whose $1.6 billion under management includes Exxon shares at Adams Express Co and Petroleum & Resources Corp. in Baltimore.

Project Pipeline

“They are probably going to fall a little short” of the production target this year, said Ober, whose holdings include 1.6 million Exxon shares. “That said, they’ve got a bunch of projects coming on stream in the next couple of years that will add a lot to output. To expect them to keep having new projects come online constantly is unrealistic.”

Exxon’s output during the current quarter probably will get a boost as the European winter begins and rising furnace use increases demand for gas from Exxon-run fields in countries such as the Netherlands, Morningstar’s Good said. European wells account for 25 percent of the company’s worldwide gas production.

--Editors: Susan Warren, Jasmina Kelemen

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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