by Veronica Chang
Russian President Vladimir Putin is relying on Exxon Mobil (XOM) and Rosneft to help him maintain his hold on the world's gas resources. This is one of the bigger news stories for Exxon, and it is unclear what effect this will have on the stock. I believe that Exxon stock is in a decent position though, especially compared to its competitors.
Russia has prided itself on being the world's biggest producer of crude oil. Last year, however, it lost that title to Saudi Arabia. A joint venture between Exxon and Rosneft in Bazhenov, Siberia, may help return the country to the top by squeezing "tight oil" from the area. Rosneft will rely on Exxon's fracking technology in this endeavor. Fracking is rather controversial, but Russia's determination to maintain its lead in oil production may work in Exxon's best interests. This is just one example of Russia's aim to open its doors to western companies that can help it at a technological level in its gas and oil exploration activities.
Bazhenov may contain up to 13.2 billion barrels of oil. This is an important area for Russia to control if it wants to continue supplying 16% of global exports. The companies are planning pilot wells to establish the extent of the reserves. To do this, they will use existing Siberian mines that do not produce much gas any more. Through the method of fracking, they will attempt to ascertain the extent of the oil reserves in the area.
Bazhenov has a more complicated geology than the shale reserves that many competitors are currently drilling. This makes the situation substantially more difficult. Certain analysts have stated, however, that the plan to promote tight oil production in Russia is within reach if the companies and the government go about it in the right way. For example, the government of Russia will have to eliminate taxes on oil.
This partnership is a good move for Exxon, as it allows the company to "book reserves in a mature oil province without taking on the exploration or environment risk." Although natural gas prices have declined substantially over time, I feel that Exxon is making the right decisions overall and should be seeing success in the future.
Exxon recently lucked out when a rise in the price of natural gas caused a rise in its stock prices. This may be temporary, however, as prices are still quite low. Such low natural gas prices are being caused mainly by new technology and large discoveries. This has led to there being too much natural gas on the market. Although Exxon and Statoil (STO) have made a significant and large discovery of natural gas off the coast of Tanzania, therefore, this may simply make the situation worse in the long run.
Competitor EOG Resources (EOG) has also benefited from the rise in natural gas prices. There are lower amounts of natural gas stockpiled than there were in previous years, but there is the same level of demand for the substance. Consequently, we have seen a spike in prices, but this increase has not returned natural gas prices to their former levels. It is unlikely that we will continue to see such a significant increase, furthermore, as there is too much natural gas and not enough cold weather to burn it in. As a result, EOG stock will likely suffer.
Anadarko Petroleum (APC) is an example of another company that has been making significant discoveries in the natural gas arena of late. It recently announced another major find off the coast of Mozambique. This is a good development for the company in some ways. This also adds to the problem that oil and gas companies are facing at the moment, however, as the huge reserves of natural gas are causing the prices to be unprofitably low. This development will have an odd effect on Andarko stock, therefore. In the short term, it may bring some benefits, but it will do worse in the long term.
Chesapeake Energy (CHK) is a prime example of companies that are suffering due to low natural gas prices. This is a major problem for the company, as it is a major producer of natural gas. In fact, it was recently downgraded rather substantially. Although the slight increase in prices have caused the stock to rise, this is far from being enough to turn its fortunes around. Hopefully, the positive moves that the company plans to make in the near future will be enough to get it back on track. I would definitely not be expecting much from this stock in the short term though.
Chevron (CVX) recently warned that the reserves of shale gas that it is mining outside of the United States may develop more slowly than we expect them to. As a result, the gas will take longer to hit the market. Given the current prices of natural gas, this may not be such a bad thing. Perhaps by the time Chevron is able to bring the natural gas reserves to the market, the problem of pricing may have alleviated enough for it to make the most of the situation. This is all speculative, however, and the lowered expectations will likely have negative effects on Chevron stock.
Although it may be a little questionable as to whether Exxon will benefit from assisting Russia in maintaining its dominance in oil production, I think that the company is one of the better oil-and-gas stocks at the time being. Natural gas is on the decline, but these things can change very quickly. In comparison to other oil and gas stocks at the moment, I am inclined to think that Exxon has a better future lined up. I would not strongly recommend the stock, but in relation to its competitors, I have high hopes for Exxon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.