Looking at the recent news, Exxon Mobil (XOM) shareholders may be concerned, as the company recently announced its intention to stop exploratory activities for shale gas in Poland. This is certainly a negative event, although I think Exxon will be strong enough to bounce back from it.
Exxon's tests in the area have proven to be unsuccessful thus far, which has surely influenced the company's decision. The company gave high estimates for the region before it began exploring, but these were not accurate. The actual amount of shale gas present is not enough for the commercial purposes of the company. In Exxon's own words, it found "no demonstrated sustained commercial hydrocarbon flow rates."
This is a bit of a blow to the company, as the original estimates were in the region of 346 billion to 768 billion cubic meters. Exploratory activities are far from being cheap, furthermore, so this represents a financial loss for the company. In addition, disappointed investors may be uninterested in holding on to this stock for very long. We can only hope that the company's other activities will be enough to counteract the effects of this failure.
Following the announcement that Exxon would withdraw from Poland, it seems that representatives from the company have not been particularly easy to reach. The reports have not technically been confirmed, but no one has tried to deny them either. It is almost like Exxon is embarrassed by the turn of events because it knows the implications of the situation for its investors. As a result, it may not be particularly keen to face investors just yet.
The company certainly has to reevaluate its position in Poland in order to create a comprehensive and workable strategy moving forward. Exxon holds six exploratory licenses for Poland. The company plans to withdraw from the country altogether in terms of its exploratory activities. Therefore, the licenses Exxon holds are essentially worthless to it. This is certainly an unfortunate turn of affairs for the company. Poland's shale gas reserves only stand between 0.35 and 0.77 trillion cubic meters (TCM) in reality, which is far lower than estimated.
The situation is likely to put increased pressure on companies operating in Poland, as the government plans to impose stricter licenses and place higher demands on companies like Exxon to successfully exploit their deposits. Foreign investors have already been complaining that they are facing discriminations from Polish authorities in terms of getting new licenses. With Exxon withdrawing from the country on the basis that it cannot find exploitable deposits, the situation can only get worse. This blow may extend beyond Exxon to the entire industry.
Competitors in the industry have had a mixture of good and bad stories in the news. There are certainly some that rise above the others though.
Two years ago, the oil spill in the Gulf of Mexico hit several oil and gas companies hard, as drilling in the area was suspended. One company may have the right idea about how to recoup its losses from this situation though. ATP Oil & Gas (ATPG) recently sued the U.S. government for $68 million in damages for "improperly and illegally" suspending the company's oil drilling activities in the area shortly after the spill occurred. This has led to delayed production and major costs to the company, as it had to find other ways to boost its production. This has already led to a jump in the stock price, so I think this will stabilize until more develops with the situation. Investors should keep a close eye on this lawsuit.
Competitor Chevron (CVX) recently signed an interesting deal with Tokyo Electric Power (TEPCO). Chevron will provide TEPCO with more liquid natural gas, and TEPCO will hold an equity share in Chevron's Wheatstone project. I believe this will greatly benefit TEPCO. Overall, the deal results in TEPCO gaining 4.2 million tons of liquid natural gas each year from Chevron. At this point in time, investors remain unaware of the costs involved in this agreement. As the details are still a bit unclear, I do not expect much movement in Chevron stock.
Chesapeake Energy (CHK) definitely needs a new chairman. The company itself acknowledges this need and plans to announce its new chairman this week. I feel that it may be too late to find someone that is right for the job though. Over the last 23 years, Chesapeake has gone downhill to the point that it is a constant disappointment for shareholders and investors. It needs new management, but is there anyone of quality who will be willing to take on the job? We will have to wait and see, but I have doubts. I do not expect this to have much effect on the stock at all.
BP (BP) is the competitor facing the most difficulty at the moment. The company has a new litigation it now has to face. Over 50,000 residents in Texas are suing BP, claiming that emissions from one of its refineries lasted for a period of 41 days and made them ill. The refinery in question was the scene of a deadly explosion. If investigations should prove that BP is actually responsible for the ill health of so many people, it will be yet another nail in its coffin. I think BP stock will be dropping, and its long-term status does not look very promising at the moment either.
While some competitors are doing well, Exxon is certainly not the only company that is struggling at the moment. Exxon needs to turn its attention to a more profitable endeavor soon though, as it has much ground to make up after the failure in Poland. Exxon is a fairly strong company, so I do believe it will be able to recover from this event. I just do not think this is a great time to invest in the company. Interested investors should wait and see what the company does next.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.