Will ExxonMobil (XOM) Capitalize on the Shale Boom?

Michael Teague  |

“Supermajor” is a term used to designate the largest major integrated oil & gas producers on the planet, with just a handful of companies like Chevron (CVX) , Royal Dutch Shell ($RDS.A), PetroChina Co. ($PTR), Total SA (TOT) , and BP Plc (BP) able to claim the the term.

Aside from the imposing $100 billion minimum market-cap that would seem to be a prerequisite for membership in the supermajor club, as well as the staggering breadth of these companies’ global presence, it would seem that another feature shared by such oil and gas behemoths is a history that is as controversial as it is long.

This is no less the case for the largest of the supermajors, who also happens to be the world’s second-largest publicly-traded company, ExxonMobil (XOM) .

With a market-cap of $379 billion, ExxonMobil comes in second only to Apple (AAPL) . It has a comfortable $100 billion lead on the third-placed Google (GOOG) , and is even further ahead of its largest peer Chevron. The company is also currently the world’s largest dividend payer in absolute terms, with a staggering $11.09 billion annualized payout.

Indeed, in terms of size and staying power, the company is in a class with very few peers. This is perhaps not so surprising, however, when one considers its origins in the breakup of Standard Oil in 1911.

Standard Oil was perhaps the first company to be able to claim the title of largest in the world. But ExxonMobil also very much resembles its predecessor in terms of the severe, protestant discipline with which it has run its massive business, no less the ruthlessness by which it has managed to swell to its current size despite all the geopolitical turmoil that has been a more or less common feature of most of the globe’s resource-rich regions over the last several decades.

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ExxonMobil dates back to two of the companies that emerged from the breakup of John D. Rockefeller’s Standard Oil over 100 years ago. In fact, Standard Oil of New York, which would go to become Exxon, and Standard Oil of New Jersey, which would go on to become Mobil, did not themselves merge until the late 1990’s.

In the wake of the collapse of the Soviet Union, major oil companies were having a difficult time finding new reserves to supplement lagging production from older ones. With the truncation of the former Soviet empire, and the potential opening-up of its many resource-rich satellites, it was thought that majors would have no difficulty replenishing their stockpiles, but this turned out not to be the case, as many of these new nations would adopt a politics of resource-nationalism that prioritized state control of oil, gas, and other valuable commodities.

The need to maintain production was in fact one of the reasons for the merger between Exxon and Mobil in the first place, as the latter’s foreign production operations were much broader in scope. Unlike its peers, however, Exxon had already had a great deal of experience in navigating difficult headwinds. During the reign of CEO Lee Raymond, the 1980s was a time of cutting costs, streamlining operations, and maximizing efficiency.

Despite the Exxon Valdez disaster that occurred late in that decade, and which many have come to blame on the company’s downsizing during the period rather than on a drunken tanker captain, the efforts to lean down were highly successful and prepared the ground for a world in which reserves were generally assumed to be constantly dwindling.

But the new millennium brought with it rapid and unprecedented technological developments that have fundamentally change this picture. The discovery of massive shale-based oil and gas reserves, and the existence and continued refinement of technologies capable of accessing them, have thrown much of the talk about energy-scarcity out of the window.

The bullishness surrounding shale oil and gas is also one of the likely reasons behind the fact that recent turmoil in Western Asian countries such as Syria, and North African nations such a Egypt and Libya, while having sent crude prices to two year highs over the past few months, has not been able to cause a serious spike of the variety that could cause economic calamity. Indeed, the oil and gas world has more “shock absorbers” that it has at any time in recent memory.

Certainly, ExxonMobil has the money to move into shale, and has made major moves in that direction. Four new and sizeable projects are due to be operational next year, including in northern Alaska, and Central Asia.

But in terms of the much-heralded North American shale rush, ExxonMobil is still relatively behind, and as such finds itself in a situation similar to that of other supermajors, who are currently being outfoxed by quicker and more dexterous independent explorers and drillers.

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