Exxon Mobil (NYSE:XOM) plans to spend approximately $185 billion in capital over the next five years on the company's oil and gas properties across the globe. This spending plan is underpinned by the company's positive macro view on the growth in energy demand over the next few decades. (To know more about oil and gas, read Oil And Gas Industry Primer.)
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Five-Year Capital Plan
Exxon Mobil has budgeted approximately $37 billion per year through 2016, with the funds spent on dozens of major projects in both the international and domestic segments. Exxon Mobil's previous guidance on capital spending, which was established at the analyst meeting held in March 2011, was in a range from $33 billion to $37 billion per year.
This projected level of spending by Exxon Mobil is among the highest of any other oil and gas company. Chevron Corporation (NYSE:CVX) recently set a $32.7 billion capital budget for 2012, and estimates that this capital will help increase production 20% by 2017.
Royal Dutch Shell (NYSE:RDS-A, RDS-B) plans to spend approximately $30 billion in capital on various projects in 2012, with the majority of the upstream budget funds spent in Australia and North America.
Petrobras Brasileiro (NYSE:PBR) has a larger five-year capital spending plan and has budgeted $224 billion in spending from 2011 to 2015. The company will spend most of these funds domestically, and focus on the considerable offshore discoveries made over the last few years.
Capital Spending Trend
An examination of Exxon Mobil's capital budgets since 2009 shows a rapid escalation in spending across the company's portfolio. Exxon Mobil reported capital spending of $27.1 billion and $32.2 billion in 2009 and 2010, respectively. In 2011, spending increased again and reached $36.7 billion for the year.
Exxon Mobil has also shifted capital away from the company's international segment as it has become more involved in unconventional resource plays in the United States. In 2011, the company spent 32% of its upstream capital budget on domestic properties, compared to only 17% in 2009.
Exxon Mobil increased its capital budget through 2016 based partly on the company's macro view of energy demand going forward. The company estimates that demand for all forms of energy will grow 40% by 2040. Natural gas will experience the greatest growth over that time, and increase at an annual rate of 1.6%. Demand for crude oil will grow at a slower rate, with the company estimating an annual growth rate of 0.7%.
Exxon Mobil estimates that this demand growth will be led by the developing economies, with Asian-Pacific countries providing 60% of the expected growth through 2040.
Despite the huge amount of capital spending planned in 2012, Exxon Mobil expects 2012 oil and gas production to fall by 3% over last year. The company estimates that production will grow from 1 to 2% annually through 2016.
Exxon Mobil's liquids production will grow faster and increase by 2 to 3% annually over the next five years. Natural gas production will grow slower and increase at a 0.5 to 1% annual rate as Exxon Mobil allocates more capital over the next five years to crude oil and liquids areas.
The Bottom Line
Although Exxon Mobil plans to spend an enormous sum of money over the next five years on its oil and gas properties, the company's production growth will be anemic over that time. This raises the question of whether the company is spending too much money buying back stock and not enough on developing its large resource base. (For additional reading, check out A Guide To Investing In Oil Markets.)
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.