ExxonMobil (XOM, Financial) reported fourth quarter 2014 free cash flow of $18 billion, growth of more than $7 billion over 2013. It delivered a significant eight key upstream projects in the year and successfully capitalized on its full-year plan to generate 4 million oil equivalent barrels per day. The drilling major added over 250,000 barrels per day of total capacity throughout a wide range of resource categories and geographies.
Seeing strong growth
ExxonMobil witnessed earnings expansion during the quarter, enabled by a greater margin production development from the U.S. and key projects in Papua New Guinea, Angola and Canada.
The excellent execution of ExxonMobil on delivering eight major upstream projects for the year along with significant free cash flow generation highlights the solid strategy of the company to enhance oil production and deliver robust shareholder returns.
ExxonMobil illustrated 80,000 barrels per day increase in Liquids production allowed by main new projects and work schedules. But natural gas production declined more than 650 million cubic feet per day with lowered entitlement volumes, reduced weather-linked demand mainly in Europe and reduction in the field production was partially offset by key projects in Malaysia and Papua New Guinea.
ExxonMobil declared 5.8% sequential growth in volumes to $223,000 oil equivalent barrels per day. Liquids production enhanced 117,000 barrels per day pushed by greater entitlement volumes, better facility uptime and superior work schedules. The production of natural gas also enhanced 639 million cubic feet per day, enabled by a solid seasonal demand mainly in Europe.
The superior growth in liquids production at the major oilfields of ExxonMobil was slightly offset by the fall in natural gas production at these wells. The natural gas production decline was primarily due to the negative seasonality effects leading to poor customer demand, field reduction and disinvestment and entitlement impacts.
A closer look at different projects
ExxonMobil delivered many projects since the previous quarter. It dug the first well at Arkutun-Dagi field at offshore Sakhalin in Russia which achieved its intended depth in December and began its initial production in the beginning of January this year. The field’s initial gross production is estimated to attain 90,000 barrels and is forecasted to deliver net gross production at Sakhalin-1 to over 200,000 barrels per day. Next, Arkutun-Dagi field is expected to be enriched by the Sakhalin project, remaining two fields Chayvo and Odoptu started production in 2005 and 2010 respectively.
In Canada, early steam production at the Cold Lake, Nabiye growth was initiated by December end, after which this steam was fed into the reservoir in the beginning of January. Post steam soaking, the initial production of bitumen is estimated by this quarter end. Overall, the production is believed to enhance for the rest of the year with gross rates estimated to achieve 40,000 barrels per day.
The new wells drilled in the key parts of Russia are believed to deliver superior oil and gas production for the full-year 2014 and carrying their success into 2015 as well. In addition, there’s improved production of oil in Canada which signifies the effective global growth strategies of the company.
ExxonMobil completed the Lucius project in the greater Hadrian area of the Gulf of Mexico in December and started the initial production in January. Total production at Lucius is estimated to be approximately 150 million cubic feet of natural gas and 80,000 barrels of oil per day post the beginning of the production at these wells in a full swing. ExxonMobil plans to install and link the Hadrian South subsea production system of flow lines to the Lucius by the end of 2014 and expects to bring it online after stabilizing the Lucius production. The initial total production from Hadrian South is estimated to achieve nearly 300 million cubic feet of gas from two wells.
ExxonMobil has signed a joint venture agreement with some key partners to redevelop the Upper Zakum oil field in offshore Abu Dhabi with an estimated resource of about 50 billion barrels. It targets on expanding the capacity at the field to 750,000 barrels per day.
The strategic production at the greater Hadrian area of the Gulf of Mexico is expected to add significant growth synergies to the already robust oil and gas wells portfolio of ExxonMobil along with the added advantages of the Upper Zakum oil field redevelopment.
ExxonMobil’s major Kearl growth project in Canada is progressing well ahead of plan and is estimated to almost double the production capacity of Kearl to 220,000 barrels per day in the near future.
ExxonMobil is developing its widespread drilling operations and exploration schedule of wildcat well at the Pelican South in the Neptune block offshore Romania. In Argentina, ExxonMobil successfully drilled and tested two of its key operated horizontal wells in the Vaca Muerta with an average rate of more than 600 oil equivalent barrels per day.
The significant drilling operations at Canada, Argentina and Romania are expected to prove hugely beneficial to the company’s overall production and significant free cash flow generation.
Lately, ExxonMobil captured three key blocks, Labrador and offshore Newfoundland and grew its charisma in the Canadian North Atlantic by approximately 1.6 million gross acres. This innovative growth prospect is believed to develop the company’s 17 years of success with Terra Nova, Hibernia and the development progress at Hebron.
Further, ExxonMobil lately incorporated huge acreage in West Africa, developing on a solid position ranging from Iberia to Angola. In CĂ´te d'Ivoire, it captured 2.3 million gross acres, by strategically negotiating the production sharing contracts for two Deepwater Frontier blocks. In Equatorial Guinea, ExxonMobil concluded PSC negotiations and acquired a key interest in other offshore block spread across 160,000 gross acres. Also in the UK North Sea, ExxonMobil gained a 50% operating interest and two key licenses. The joint bidding of licenses by two key oil and gas majors particularly, Shell and ExxonMobil cover over 250,000 gross acres.
The strategic capturing of new blocks and deep company operations at West Africa is believed to open a new growth vertical for ExxonMobil in the new growth market.
Conclusion
Overall, the investors are advised to avoid investments into the Exxon Mobil Corporation looking at the stock overvaluation with the trailing P/E and forward P/E ratios of 11.66 and 16.61 respectively. The PEG ratio of -17.49 suggests no growth but decline. However, the profit margin is marginally healthy at 8.80%. Diluted EPS of 7.60 seems ok. But, the company’s balance sheet is hugely debt-laden with total debt of $29.12 billion against total cash of $4.62 billion only, restricting ExxonMobil to make strategic long-term investments.
