This Oil Stock Is Worth Holding Until 2040
ExxonMobil's (NYS: XOM) investor presentation this year shows why investors focusing on the long term should consider the Big Daddy of energy for their portfolios.
What caught my attention was the company's long-term predictions and how it is actually gearing up to meet the demands and challenges for the next three decades. And that is precisely why I believe Exxon is a solid long-term prospect.
Here is the lowdown on Exxon's predictions and how the company intends to tackle the rise in demand:
1. Global energy demand will grow about 30% by 2040. Exxon expects to spend approximately $37 billion per year for the next five years. The company's total proved reserves stand at almost 25 billion barrels of oil equivalent. Additionally, for the last 18 consecutive years, the reserve replacement ratio was more than 100%, which means the company has replaced more reserves than it has produced. Moreover, Exxon is on the lookout for more resources. Notable among them are projects off Alaska, West Greenland, the Black Sea, Guyana, Vietnam, Tanzania, and Madagascar.
2. Natural gas is expected to lead demand with an average global annual growth rate of 1.6% -- thanks to increasing requirements of power generation. Exxon has a globally diversified portfolio of natural-gas assets. With 76 trillion cubic feet, or Tcf, of proven gas reserves under its belt, the company looks well-placed to serve the growing demand. Its acquisition of unconventional gas producerXTO Energy has been vital to its strategy and will continue to play a crucial role in the North American shale gas space.
The Dutch Slochteren field, in the center of the gigantic Groningen gas field, cannot be forgotten, either. A 50-50 joint venture with Royal Dutch Shell (NYS: RDS.A) (NYS: RDS.B) has already seen 1.7 Tcf of natural gas pumped out of the field since 1963. However, CEO Rex Tillerson feels that this field is capable of producing gas for another 50 years! The field is still estimated to contain another trillion cubic feet of recoverable natural gas.
In Papua New Guinea the company is currently developing a 9 Tcf reserve and a two-train processing plant that is capable of producing 6.6 million tonnes of liquefied natural gas per annum. With the Chinese, Japanese, and Taiwanese markets on its radar, production is expected to start in 2014. Additionally, it has a 25% stake in the Chevron (NYS: CVX) -operated Gorgon LNG project in Barrow Island off Australia.
3. Demand for oil is expected to grow at an annual rate of 0.7% globally. While the projected rate of growth is less than that of natural gas, the value is quite significant in absolute terms. In 2040, oil and other liquid fuels will still remain the largest source of energy, accounting for a third of global demand. Exxon is increasing its focus on oil sands and tight oil projects. The Kearl oil sands project, operated by Imperial Oil (ASE: IMO) , is expected to start with a production rate of 110,000 barrels per day by the end of this year. ExxonMobil holds a 70% stake in Imperial. By the end of 2015, the expanded project is expected to produce 345,000 bpd. The Kearl oil sands in Canada are estimated to hold a whopping 4.6 billion barrels of recoverable bitumen resource. Additionally, Exxon is well-positioned in the liquids-rich unconventional shale plays of Bakken, Permian, and Woodford.
In Indonesia, the company is developing a 450 million-barrel resource. Expected to commence operations in 2014 with 20,000 bpd, full field capacity is expected to hit 165,000 bpd. Exxon has been awarded five such full-field contracts for engineering, procurement, and construction. The Sakhalin and Hebron projects, along with the Kara Sea project in north Siberia, are challenging; however, these Arctic reserves are very promising.
4. The Asia-Pacific region is expected to account for 58% of the overall rise in energy demand. As mentioned above, Exxon has plenty of upstream projects with the Asian markets in mind. However, an integrated oil and gas company can further take advantage of the situation by having direct presence in the end-user market with the help of its refining and marketing operations -- which is exactly what Exxon is up to. In Singapore, the company boasts its largest refinery in the world with throughput volumes of 605,000 bpd.
Asia is also expected to account for two-thirds of global chemical demand. In line with this, Exxon is expanding its chemical refining capacity at its Singapore refinery by a fantastic 2.6 million tonnes. Identifying opportunities early on seems to come naturally to Exxon.
Foolish bottom line
On the operations front, Exxon is doing an excellent job of meeting the rising demand for energy. This oil giant seems to know what it is doing. In the next article, I will discuss the company's historical stock performance, which will show you why it has huge potential going forward. Right now, all you need to do is add ExxonMobil to your personalized watchlist.
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