The Russian energy giant Rosneft (RNFTF.PK) and the world's biggest oil and gas firm Exxon Mobil (XOM) have signed another arctic exploration agreement through which Exxon Mobil will get an additional 234,000 square miles of oil and gas exploration in the Russian arctic, while a separate agreement gives the Russian firm a 25% stake in Point-Thomson natural gas field. The two agreements were signed in a high profile ceremony at Moscow between Stephen Greenlee, Exxon's President, and Igor Sechin, Rosneft's President in the presence of Russia's President Vladimir Putin. The new deals are a part of the larger effort by the two companies to cooperate on offshore projects in North America and Russia's Black and Kara seas.
The current deal will finally cause some activity at Point Thomson; a lucrative oil and natural gas field estimated to hold reserves of up to 8 trillion cubic feet of gas and 400 million barrels of oil and condensate liquids, but has been lying idle for decades. This is because, unlike Prudhoe Bay oil-gas field or Kenai dry-gas field, Point Thomson is a "retrograde gas condensate reservoir" which actually makes development far less lucrative due to its relatively expensive requirements. However, if the reserves are proven to be true and successfully tapped, then Point Thomson could turn out to be a goldmine.
Meanwhile, two of the biggest oil companies Chevron (CVX) and Exxon Mobil have both posted strong quarterly earnings on the back of better than expected downstream operations. While Chevron's net income increased by 41.2%, or $7.2 billion, despite the 3.4% decline in revenues to $56 billion; Exxon Mobil increased its profit by 5.9% to $9.95 billion - or $2.20 per share - despite the 5% drop in revenues to $115.17 billion. While Exxon could not meet the revenue estimate of $115.22 billion, its EPS was 21 cents above analysts' expectations.
Exxon's upstream earnings from exploration and production, the backbone of the company, fell by 12.1% during the quarter to $7.76 billion. Excluding special items (entitlements, OPEC quota, etc), quarterly production dropped by 2.1%. Liquids production fell by 47 thousand barrels per day to 2,203 thousand barrels per day, and natural gas production dropped by 1,136 millions of cubic feet per day to 12,541 million cubic feet. On the other hand, downstream earnings increased by a whopping $1.34 billion (up 316%) to reach $1.77 billion. About $1.2 billion of this increase in refining earnings was directly due to improved margins on the back of lower input costs and rising output prices. Almost every other refinery has reported improved margins due to a shift from the relatively expensive foreign crude to U.S oil.
The business spent $5 billion in share buybacks in the previous quarter and plans to spend a similar amount in the current quarter as well. For the full year, Exxon Mobil earned $44.88 billion, just $340 million short of the enormous profit of $45.22 billion that it made back in 2008 - the highest by any listed company anywhere in the world. If there is any one company that has the wallet to develop Point Thomson, then that's Exxon Mobil.
The business has been embroiled in a lawsuit against the state of Alaska over the field due to lack of development, but since that case is now over, Exxon has little option but to start working on it. In March 2012, Exxon purchased Chevron's 25% stake in Point Thomson at an undisclosed price, which made it the biggest shareholder in the field. Its other partners include BP (BP) with a 32% and ConocoPhillips (COP) with a 5% stake. The total value of the field is estimated to be around $100 billion. According to the new rules of engagement with the state, Point Thomson should start pumping natural gas by spring 2016 or the state would start revoking the leases.
Since January, Exxon's shares have risen by 2%, while Chevron is up by 6.30%. Exxon has a slightly higher P/E than Chevron, but this is a conservatively managed company (which is evident by its reluctance to develop Point Thomson) that gives lucrative return on equity. Exxon's shares are currently trading at $88.36, about $5 short of its all time high level. Macquarie Equities Research have recently downgraded the stock as there is little room for improvement. It is therefore better hold this stock rather than buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.