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Exxon Mobil (NYSE:XOM) started May with a bang on news that it slid back into the number one spot on the Fortune 500. Since 2006, under the guidance of CEO and Chairman of the Board Rex W. Tillerson, Exxon Mobil has flourished. Though shareholders contested Tillerson's annual compensation package during last year's proxy season, Exxon Mobil is strongly resisting changing its compensation formulas.

Natural gas competitor Chesapeake Energy (NYSE:CHK) recently caved in to pressure from its shareholders to change the compensation package for its CEO Aubrey McClendon and other executives, as falling natural gas prices have decimated that company's stock price. The difference between Exxon Mobil and Chesapeake is that Exxon Mobil has the benefit of oil prices currently above $100 a barrel, which offsets revenues lowered by the U.S.' natural gas price depression. Chesapeake in contrast, relies on natural gas for most of its revenue. While the company is attempting to diversify its resources mix, I think its lack of revenue and its questionable investment decisions have hindered the company's ability to move forward with this transition. Exxon Mobil, on the other hand, now has the luxury of diversifying into natural gas while lease prices are low in the U.S. and revenue supports exploring new, unproven fields worldwide.

Moving into Australia

Exxon Mobil is predicting that Australia will be the world's largest exporter of liquid natural gas by 2020, viewing the prospect of renewable energy sources as a replacement energy source for oil and gas as "unrealistic". Exxon Mobil, like competitor Chevron (NYSE:CVX) is active in Australian natural gas plays. Chevron is ahead of Exxon Mobil in exploiting this area. Exxon Mobil is just a 25% partner through its subsidiary Mobil Australia Resources in the Gorgon Joint Venture, which is 47% owned and is operated by Chevron subsidiary Chevron Australia. Chevron is also operating the massively successful Wheatstone LNG project, in which it participates as operator with a 72% interest.

I expect that as Chevron's successes here continue to mount and Exxon Mobil's expectations for this area are high, Exxon Mobil will begin devoting considerable acquisition and exploration resources to Australian plays in the near future. This has the potential to push Exxon Mobil above $100 assuming that the company's predictions are correct and energy demand remains high, supporting a steady increase in index prices. It seems that Exxon Mobil believes the major hindrance to progress here is in changing regulatory frameworks. In recent remarks, Vice President, Asia Pacific and Africa Emily Cochrane indicated that "policy drifts" towards increased regulation of oil and gas exploration and production in Australia were a matter of concern, which could lessen the company's interest in continued partnerships. She also noted that:

only with the right regulatory framework will Australia and other countries in the region capture their share of demand growth.

Exxon Mobil is not afraid to flex its muscle when it needs to, and these remarks indicate that the company will be vocal in protecting the interests of oil and energy companies abroad in order to ensure a favorable environment for unconventional operations. These remarks also make it clear that countries that have the resources to improve local economies will not benefit if these countries' regulations are not standardized in a way that benefits Exxon Mobil and its peers.

Sounding Out Indonesia

Exxon Mobil is also betting on rising demand in the Asia Pacific region, forecasting that this region will account for one third of the world's gas demand by 2040. The company believes that in the thirty years between 2040 and today, gas use for power generation will rise by 85% worldwide.

In its attempts to prepare for this dramatic rise, Exxon Mobil is meeting with some pitfalls. The company recently indicated that preliminary results from a drilling program in East Java were "not satisfactory", and that it would be returning a previously acquired block to the government of Indonesia due to its belief that the block will not be productive, and also because of pushback from nearby Indonesian nationals over environmental concerns.

Exxon Mobil is seeing success in Indonesia on the Cepu block, agreeing earlier this year to increase the production of Mobil Cepu Limited, an Exxon Mobil subsidiary, from 22,000 to 27,000 barrels per day. The agreement appeared to be made with reticence, as Indonesian legislators pointed out that progress on the block is not progressing as anticipated in order to meet a target of 165,000 barrels per day.

Chevron is also moving into Indonesia. In its 2011 annual report, Chevron called Indonesia one of its core areas. In Indonesia it primarily produces geothermal energy and heavy crude. Another competitor here for Exxon Mobil is Anadarko Petroleum (NYSE:APC), which has interests in 3.4 million exploration acres under three different agreements, under one of which Anadarko is the primary operator. However, Anadarko is looking for a buyer for at least certain of these assets. In its annual report Anadarko seems to indicate that the primary motivation for this sale is to fund its $4.0 billion payment to BP (NYSE:BP), which removed its obligations under litigation related to its interest in the Deepwater Horizon rig.

As where there is opportunity one can expect to find a representation of all the major players, BP is also operating in Indonesia, exploring for unconventional gas as well as participating in the development of the country's onshore coal bed methane fields in the Barito basin and the Arafura Sea. One such asset group, the West Papua I and III PSAs, again sees BP cooperating with Chevron, as Chevron acts as operator of this project while BP maintains a 32% interest. These are promising developments as BP is producing 59 mcf from Western Indonesia and 340 mcf from Eastern Indonesia per day of natural gas. I think that by waiting to enter these fields, Exxon Mobil will be able to benefit from the accrued knowledge of competitors like BP, which will help it to avoid mistakes and replicate strategies that lead to success in this area of the world.

Outlook

Exxon Mobil is trading around $82 per share, with a price to book of 2.4 and a forward price to earnings of 9.3. Its revenue growth is below average for its group, but its operating margins are correspondingly more impressive, which indicates that rather than chasing after growth like Chesapeake and Exxon Mobil is taking the cautious approach. Given that the energy markets are in an exceptionally volatile period, I think shareholders can forgive Exxon Mobil for this temporary revenue offset in favor of a strong stock with greater future growth potential. It should also be remembered that Exxon Mobil has a strong dividend history, with yields currently standing at 2.8%. Should Exxon Mobil's predictions for energy use and resource potential in Australia and the greater Asia Pacific region come true, I anticipate this stock will soar to the $89 level, and the current disparity between oil and natural gas indexes in the U.S. will be forgotten.

Source: Exxon Mobil Should Hit $89 By 2014