By Morgan Smith
Exxon Mobil (NYSE:XOM) recently announced its intention to farm out several of its oil and gas blocks in Indonesia. The reason behind this decision seems to be related to the fact that the blocks in question are not providing an output that the company considers to be satisfactory. In addition, a spokesman for the company stated that the company would also like to share the risk inherent in such mining with others.
The company hopes to farm out "Surumana, an offshore block that Exxon has an 80% stake in, the wholly owned offshore Mandar block and the offshore 49%-owned Cendrawasih block". Exxon also has another block in East Java. However, this block will not be farmed out, but instead returned to the government. The company cites the reason as this being due to "social obstacles".
Exxon, as well as Chevron (NYSE:CVX), may face opposition from its shareholders regarding the risks of fracking. Although the shareholders of these two companies are usually quite docile and content to go along with things, it appears to me that are starting to realize that they'll need to make their voices heard in this regard. Shareholders in these two companies have requested a higher degree of disclosure regarding the risks of hydraulic fracturing, but so far their appeals have not really been taken very seriously by the boards of the companies.
In recent company elections, however, more and more support for this increased disclosure has been garnered. When the companies meet for their shareholder meetings, I expect that there will be an even higher level of support in favor of full disclosure. If enough shareholders vote in favor of fracking disclosure, the companies don't really have to do anything, but it may lead them to cave in to some of the petitions that shareholders have brought forward recently.
If they do cave it will only be to alleviate the situation at next year's shareholders meeting in advance. Shareholders want comprehensive reports form Exxon and Chevron on "the risks to their operations and finances associated with public opposition to hydraulic fracturing". The 'public opposition" mentioned here is due to environmental concerns. This method of obtaining certain oil causes potential pollution and water disposal problems.
Exxon attempted to remove the proposal for fracking disclosure from its proxy statement. To me, this means that Exxon expects the popularity for the proposal to increase from here on out. If it thought that there was little chance for the proposal to be passed, it would not have gone to the effort of trying to omit it and having its efforts denied.
So, in short, the most recent news regarding Exxon is not what you would call indicative of a bright future. Neither is it conclusively indicative of a bad future. All that we can do at this point is monitor the stock closely to see where it goes from here on out. The issue of fracking is perhaps the more worrying issue as this affects the company's public image. Public image can have a huge impact on whether a company is seen as trustworthy, so this is not an ideal situation for it to be in at the moment.
Let's take some time to consider Exxon's main competitors. It seems that regarding the BP (NYSE:BP) oil spill issue in the Gulf of Mexico, some companies making claims against the company for damages will not be treated in the same as others. The results will be, in fact, the result of "potluck", as it were. Even if the damages caused are the same or worse, companies that are not in the area zoned on a map that coincide with the settlement will not receive the same benefits as those that are. In some cases, the zoning seems unfair and badly balanced, at least to me, and I think that this may cause some consternation. There is a slight chance that this will come back to haunt BP in the future.
Chevron is one of the companies involved in shipping North Sea crude to head to Asia. This is a trend that has been instrumental in keeping the prices of oil in the region up at a reasonable level, something that more companies should think about doing the world over during this difficult time for oil and gas companies everywhere. Others could learn from this example.
Recently, BHP Billiton (NYSE:BHP) provided an update relating to its operations at the TEMCO manganese alloy facility in Tasmania, Australia, relating to its decision regarding whether the facility is an economically viable one to maintain. Basically the review of the facility is now complete and the result is that operations at the plant, which were suspended for 90 days in order to analyze the plant, will soon be restarted. Full operations should resume safely and immediately. BHP had me worried for a minute there. Up until now it has always presented a fairly stable front to stock holders.
Competitor Devon Energy (NYSE:DVN) is about to get itself into some debt. And by "some" I mean $2.5 billion, long term. You can't fault its timing. At the moment, interests rates are low and credit is relatively strong, so if you need to take out loans, this is the climate in which to do so. The money will go into paying off the company's existing debt. In addition, some of it will also be out towards funding new operations. If you examine the situation you can see that it is quite sensible - the company has converted its short-term debt into long-term debt that it can repay at far better rates.
Overall, Exxon remains the biggest dog in the pound. The company has been facing increasing challenges and I expect to see it struggle until something comes up to boost its success.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.