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Exxon's (XOM) Key Resource is Getting Scarce

November 29, 2012 9:40 AM EST Send to a Friend
Exxon Mobil (NYSE: XOM) is running low on crude plays and analysts don't see a ramp-up in production happening anytime soon.

According to the WSJ Exxon will begin work in the Kearl Project in Northeaster Alberta, Canada, next month, which will add about 170,000 barrels per day of crude to its output. That's the good news.

The bad news is that Exxon recently reported the lowest quarterly production in some three years. Despite Exxon said it has about 21 new plays lined up to start in 2014, analysts aren't biting. An Oppenheimer analyst noted that delays in the energy industry are the rule, not the exception.

UBS sees production down 5.7 percent in FY12, larger than 2.7 percent expected for BP plc (NYSE: BP), 2.9 percent at Chevron (NYSE: CVX), and a 2.2 percent rise for Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B).

The lack of production stems from a perfect storm, of sorts; easy-to-reach locations are becoming scarce and government-backed companies from China nd Russia are getting more aggressive.

Exxon execs have said in the past that they don't expect an increase in production overnight, nor at the expense of profitability. Given that Exxon now plans to spend $37 billion per year on exploration through 2016, up from under $20 billion in 2009, profitability is on the brink.

About 37 percent of output is also expected to come from Canadian oil sands, like Kearl. However, despite the billions in capital on workers and development, Exxon still faces the problem of exporting all of the oil given limited pipeline out of the hard-to-reach plays.

Another recent news bit has Exxon potentially looking to sell its stake in an Iraqi play, which should produce 1.6 million barrels per day by 2016. The reason is a split between operating in south Iraq or the Kurdistan region of the north. Exxon hasn't made a final decision on the move yet.

So, for investors interested in continued growth in an energy company, Exxon might move to a speculative play over the long-term. Some believe that investments in Canada as well as the recent acquisition of Bakken assets from Denbury (NYSE: DNR) will work well for Exxon next year.

But, it's always good to do your homework. Shares are modestly higher at the start Thursday.




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