ExxonMobil on mergers: ‘very well covered’

OREANDA-NEWS. August 03, 2015. ExxonMobil said its operations are adequately spread across the different oil and gas businesses, dashing any immediate hopes of the cash rich major making a mega acquisition in the current market downturn.

"I characterize it for us as business as normal," vice president of investor relations Jeff Woodbury said in their earnings call. "If you step back and think about the diversity of our resource base, we're very well covered across all of the resource types."

The 50pc fall in crude prices since last year had stoked expectations that ExxonMobil may be on the prowl to make an acquisition, especially of a US shale producer with solid assets but a balance sheet stretched from the weak oil prices.

US Bank Goldman Sachs had earlier this month said US shale producers like EOG Resources, Pioneer Natural Resources and Continental Resources are prime acquisition targets for majors who are under-exposed to US unconventional resources. Global oil majors have \\$150bn "of firepower that won't stretch their balance sheets" and can defer \\$325bn of spending on the top 420 marginal projects, it said.

ExxonMobil took a huge position in the US shale in 2009 with its \\$31bn-plus-debt takeover of shale gas producer XTO, but the deal was poorly timed as gas priced crashed soon after. The deal helped ExxonMobil sustain its reserves replacement rate but has yet to pay off and left the company even more wary of overpaying for assets.

Still, ExxonMobil is "always interested in expanding," Woodbury said. "So I wouldn't suggest that as we consider opportunities for picking up additional assets, that we're focused in one area or the other. We're always looking for high-grading the portfolio."

ExxonMobil will continue to invest its current portfolio of assets "and we have a very attractive inventory of high-quality opportunities," Woodbury said.

So far, the only mega merger in the oil and gas industry in the current downturn has been Shell's move to buy UK-listed BG for \\$70bn, announced in April. The deal will enhance Shell's oil production through access to BG's deepwater Brazilian assets and its LNG output through its Australian assets. The addition of upstream assets to an enlarged Shell will answer worries it has allowed its reserve replacement ratio to drop.

Prior to that, oilfield services giant Halliburton announced in November its plan to acquire its rival Baker Hughes for \\$34.6bn.

Earlier in the day, ExxonMobil's second-quarter oil and gas output rose nearly 4pc from a year earlier but a steep fall in crude prices cut profits in half, despite robust refining income. The company said it was sticking by its 2015 capital spending guidance of \\$34bn, but that figure may come in lower given the savings the company is seeing from the drop in drilling costs and improvements in efficiency.