With others cutting back on capital spending, ExxonMobil plans to spend more

ExxonMobil (XOM) goes its own way. Again.

When oil prices were soaring in 2006 and 2007, ExxonMobil refused to get sucked into a race to see who could spend more on exploration.

Now that everyone else is cutting back on capital budgets (and some companies such as Chevron (CVX) are cutting jobs) ExxonMobil has announced that it will increase capital spending by 4% in 2010 to almost $28 billion.

But that extra money isn’t going into drilling, exploring, or developing oil. Instead ExxonMobil is increasing an already big bet on natural gas. (The company bought U.S. natural gas producer XTO Energy (XTO) for $28 billion in stock in a deal that’s expected to close in the second quarter of 2010.)

You can see the emphasis on spending on natural gas projects in 2009-2012 just be scanning the company’s March 11 presentation to analysts. (You can find a copy of that presentation here http://media.corporate-ir.net/media_files/webcast/2010/mar/Exxon/final.pdf ) Read more

Oil drilling failure rate surges at the Western majors

It’s not a factor now in the climbing price of oil but the trend certainly doesn’t portend cheaper oil down the road. Or a rosy future for the Western oil giants.

In 2009 Chevron’s (CVX) drilling failure rate climbed to 35%. More than one-third of exploratory wells came up dry. That compares to a 10% failure rate in 2008.

And that’s by no means an isolated increase in the drilling failure rate. ConocoPhillips (COP) saw its failure rate climb to 43% in 2009 from 32% in 2008.

Higher failure rates mean that it gets more and more expensive to find new oil to replace what’s been pumped out of the ground. Chevron’s target is a modest 1% increase in oil and gas production this year. ConocoPhillips is forecasting a 2.7% drop in production in 2010.

The reasons for the climbing failure rate are pretty simple. Read more

Oil to stay stuck at $70-$80 a barrel in 2010

So who ya’ gonna’ believe on oil prices in 2010?

The economists at the International Energy Agency predict that oil demand will pick up sharply in 2010, rising about 1.5 million barrels a day from 2009 levels.

Big oil traders, who handle about 15% of the world’s oil output, are significantly less optimistic, according to the Financial Times. They say, the newspaper reports, that demand will pick up more slowly than expected in the first half of 2010. These companies say the increase will be more on the order of 1 million barrels a day.

And that won’t be enough to move oil prices currently stuck in a trading range of $70 to $80 a barrel.

The problem, as the oil traders see it, is that although demand from China and India will increase strongly, growth in demand from developed economies will be anemic.

OPEC (the Organization of Petroleum Exporting Countries) looks like it’s going with the traders. Read more

ExxonMobil buys U.S. natural gas for $31 billion–I told you this was a big trend

ExxonMobil (XOM) will buy XTO Energy (XTO) for $31 billion in stock. (ExxonMobil will also assume $10 billion in XTO Energy debt.)

This acquisition is just the latest example of a shift among the international energy majors from exploration and development for oil in risky new geologies and tough climates to a concentration on predictable, low-production cost assets such as onshore U.S. reserves of natural gas locked up in shale formations such as the Barnett shale formation of Texas.

I flagged that trend for you in two posts earlier this month. You’ll find links to those columns later in this post. Read more

Devonshire Energy’s decision to sell its expensive to develop deepwater assets in the Gulf of Mexico in order to concentrate on its onshore natural gas reserves makes perfect sense.

For that company.

For the oil industry and for the global economy picture, though, could make the predicted energy crisis of 2015 or so much worse.

In the short-term, there’s plenty of oil. The slowdown in the global economy and the addition of new supplies from countries such as Angola assures that. OPEC (Organization of Petroleum Exporting Countries) has a sizable surplus of production capacity.

In the long-term the story is very, very different. In the long-term, say 2030, oil could be in serious shortage again. And I think the likely effects of that shortage now 20 years off will be felt much sooner thanks to perfectly reasonable decisions by individual oil companies to maximize their profits. Maybe as soon as 2015.

If you are a genuinely long-term investor I’ve got a three stocks to suggest at the end of this post for how to profit from what is admittedly a very distant trend. Even if you’re not interested in putting money to work on prospects that are so far away, I think knowing about this trend will give you potentially profitable context for all your investments. Read more