A Whirlwind Tour of ExxonMobil's Operations
All that's required for conviction that the world's energy scene is becoming more wild, wacky, and challenging by the day is to create something of a travelogue describing a few of ExxonMobil's (NYS: XOM) recent adventures across the planet. Believe it or not, such an approach is likely to strengthen whatever conviction you may already have that the biggest member of Big Oil unquestionably belongs in your portfolio.
In looking at Exxon's repertoire of operations, we'll be limited to scratching the surface for a couple of key reasons: First, the company is involved in so many locations that you simply wouldn't cotton to reading about all of them. And second, while there are surprisingly few producing areas in the world where the company can't be found, if we head for Saudi Arabia, we'll bump into Chevron (NYS: CVX) , which is working with Saudi Aramco on an upstream project. However, we won't find any of the other major companies in the capital of oil production.
The Ruskies are first
So let's head for Russia, which as you know is no slouch as an oil and gas producer. There, if we meander as far east as possible, we'll find Exxon folks working diligently on a frigid and desolate 500-mile-long plot of land named Sakhalin Island. Exxon has been successful in developing its Sakhalin-1 project in a way that Royal Dutch Shell (NYS: RDS.B) wasn't with Sakhalin-2. A slug of Shell's assets in the project was forcefully "bought" at a rock-bottom price by Gazprom, the Russian government's huge gas company.
Now, despite encountering a few of its own travails on Sakhalin with the Russian bureaucracy, Exxon has agreed to a joint venture with Rosneft, the state oil company. About four years from now, as a major part of a new venture that even involves some Western Hemisphere properties, the two companies will begin exploring the promising but untested Kara Sea in the Russian Arctic.
I'd suggest you avoid applying for work on the project, since a portion of Russia's already-producing territory can descend to a minus 70 degrees Fahrenheit in winter, a level that would keep even the Green Bay Packers inside. And beyond that, you're likely aware that Russia's political situation has suddenly become dicey -- to the extent that a Russian mathematician, writing in Wednesday's Wall Street Journal, all but drew the curtain on the regime long headed by Vladimir Putin, who, in a March election, will attempt to recapture the country's presidency. So were I running Exxon -- and I trust being paid accordingly -- I'd tread lightly regarding anything to do with Russia.
Departing adult leadership
And then there's Iraq, about which you've heard more than you'd like since we first began military operations there in 2003. Coincidentally, however, our war there was officially ended on Thursday, while, as my Foolish colleague Aimee Duffy told you recently, the likes of ExxonMobil, BP (NYS: BP) , and Italy's Eni (NYS: E) are plugging away renovating big, but neglected, Iraqi wells.
ExxonMobil apparently plans to spend $50 billion just to upgrade the giant West Qurna Phase 1 field. But I'm concerned: With adult leadership in the form of U.S. forces completing their departure from the still-chaotic country, I find little justification for the notion that Iraq's obstreperous neighbor Iran won't initiate major problems, helping itself to much of Baghdad and its surrounding countryside -- and, of course, to the oil wells. This onerous effort could seemingly begin before my February birthday.
Hugo the pickpocket
Now let's head for South America, where the picture may not be as rosy as it appears. You likely recall Venezuelan President Hugo Chavez's 2008 caper wherein he nationalized his nation's energy industry, helping himself -- or his national company, PDVSA -- to areas being worked in the Orinoco basin by Exxon, France's Total (NYS: TOT) , and a handful of other majors.
Exxon was the most active of the companies in contesting Chavez's sticky fingers. But the compensation fight goes on. According to The Fool's Rich Duprey, ExxonMobil first demanded $12 billion for its confiscated assets. But that clearly was way out-of-line for the South American dictator. Now the company's asking price has been lowered to $7 billion, but Hugo is sticking with a $1 billion offer. My goodness, you could buy a pair of Solyndras for that. Or maybe not.
Further south is Brazil, with its prolific Santos Basin, an area included in Exxon's operations. Indeed, about a third of the world's new oil discoveries during the past five years have come from the country's offshore waters, primarily the prolific deepwater Santos Basin. All this has kept Petrobras (NYS: PBR) , the country's national oil company, prominently displayed on investors' radar screens.
However, in a condition that has remained relatively unpublicized worldwide, the country's still-relatively-new President Dilma Rousseff has inherited all manner of corruption from her predecessor, Luiz Inacio Lula da Silva. Where this situation will lead is impossible to predict, but any expansion in the country's smarmy government conditions could affect the willingness of major companies to do business with Petrobras, a circumstance that would hardly remain unfelt by world crude prices.
Exxon's real strength
So why should all this make you want to plop more shares of Exxon into your portfolio? After all, as I said earlier, we just scratched the surface regarding the international challenges the big company has faced of late. We could have added its shut-out from the promising Jubilee field by the locals in Ghana, along with the perpetual need to battle terrorism in Nigeria. Nevertheless, ExxonMobil remains attractive because it has gas.
No, not that kind. Rather, largely through its $25 billion (plus debt) purchase of U.S. unconventional gas producer XTO last year, the company has become the largest natural gas producer in our country, where it's involved in most of the meaningful plays. At the same time, it's involved with Chevron -- which serves as operator -- and Shell in the massive Gorgon LNG project in Western Australia.
The company has just released a study that predicts that by 2025 gas will replace coal as the numero uno fuel for creating electricity in the U.S. And in addition, its analysts believe that gas will become the world's No. 2 fuel source, given its abundance and its relatively clean-burning qualities. Keep in mind that both Europe and Asia are involved in nascent efforts to produce gas from unconventional sources.
I know, the study sounds somewhat self-serving. But I actually believe that as time passes we'll strengthen our notion that oil companies that also are meaningful gas producers should be the foundation of our investment portfolios. For that reason alone, it appears that a Foolish version of My Watchlist that doesn't include ExxonMobil is inherently incomplete.
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At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of Chevron, Petroleo Brasileiro, and Total. Try any of our Foolish newsletter servicesfree for 30 days.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Fool contributorDavid Lee Smithdoesn't own shares in any of the companies named in this article. The Motley Fool has adisclosure policy.
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