It was a tale of two cities this week for big oil, as one reported trouble ahead in its interim update due to weak refining results while the other reportedly had a major discovery in North America Shale gas in the upstream segment.
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Chevron Corp (NYSE:CVX) released its second quarter of 2009 interim update, and said that its downstream results would be "significantly lower" than the previous quarter. This was pretty much expected by investors, and was in line with what Conoco Phillips (NYSE:COP) said earlier in the week in its interim update.
Chevron said that industry benchmark margins were down by half from the same quarter of 2008, and also down sequentially from the first quarter of 2009. Marketing margins were higher, but not enough to offset the weak refining.
Refining seems to be facing the twin problems of poor fundamentals, as well as a threatening regulatory environment. Neither of these proffers a good outlook for the rest of 2009.
While Exxon-Mobil (NYSE:XOM) has refining exposure as well, investors were more interested in its exploration and development in the Horn River Basin, located in British Columbia, Canada. The head of global exploration at Exxon Mobil said of all the areas that the company is looking at for shale gas, the Horn River Basin looked the most promising. The company has 250,000 acres under lease here and said that results from the first set of wells show initial production rates of 16-18 million cubic feet per day.
Exxon Mobil is not the only exploration and production company interested in the area. There is a group called the Horn River Basin Shale Gas Producers, with eight members, including Exxon Mobil.
Devon Energy (NYSE:DVN) is one of these companies, and has 153,000 acres under lease. The company is moving slowly here, and plans two wells in 2009.
Another member of the group is Nexen (NYSE:NXY), a large Canadian company. Nexen has 88,000 acres under net lease, and said during its first quarter of 2009 earnings conference call that the play is "one of the most significant shale gas plays in North America."
EOG Resources (NYSE:EOG) also has major acreage of 157,500 acres, in what it calls British Columbia Shale Gas. It's not clear if all this is in the Horn River Basin, as there is another shale play nearby called the Montney Shale, which lies just south of the Horn River area. What is clear is that EOG Resources reported initial production rates in its wells similar to the Exxon Mobil results.
The Bottom Line
Investors were confronted with conflicting news in the Energy patch, as one oil giant reported continuing weakness in the downstream refining sector, while the other apparently had exploration success in a shale gas formation in Canada. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)
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