Exxon Mobil (NYSE:XOM) recently announced two major oil discoveries and a gas discovery as a result of its deepwater exploration operations in the Gulf of Mexico.  The company claims that this is one of the largest discoveries in the region over the last decade and would add more than 700 million barrels of recoverable oil equivalents to the company’s reserves. Exxon is the largest independent oil and gas exploration and production company in the world, producing more than 4 million barrels of oil equivalent (boe) daily. It competes with other industry giants like BP (NYSE:BP), Chesapeake (NYSE:CHK), Anadarko (NYSE:APC), ConocoPhillips (NYSE:COP) and Chevron (NYSE:CVX).
We currently maintain a $92.44 price estimate for Exxon Mobil, implying a 15% premium to market price.
The company’s exploration expenditure seems to be paying off
- Exxon Mobil Q1 Earnings: Revenues And Earnings Suffer Due To Low Oil Price Environment, Company Cuts Capex
- By What Percentage Can Exxon Mobil’s Revenues Grow Over the Next Five Years?
- How Has Exxon Mobil’s Revenue Composition Changed In The Last Five Years?
- What Has Led To More Than A 30% Decline In Exxon Mobil’s Revenues & EBITDA In The Last Five Years?
- What Is Exxon Mobil’s Fundamental Value Based On Expected 2016 Results?
- How Are Exxon Mobil’s Revenue & EBITDA Composition Expected To Change By 2020?
Exxon Mobil has been focusing a lot on expanding its production capacity as well as its reserves base – a fact clearly indicated by the company’s declaration of allocating between $33 billion and $37 billion per year for capital and exploration expenditures over the next 5 years.  This works out to a budget of more than $100 million a day to pursue oil & gas opportunities.
And the large discovery of liquids comes with an upside
At the end of 2010, Exxon reported that its resource base consisted of almost 25 billion boe of proven oil and gas reserves, and the company’s 10-year average reserve replacement ratio (RRR) was 121%, with liquids replacement at 95% and gas at 158%. ((Exxon Mobil Corporation Announces 2010 Reserve Replacement, BusinessWire, Feb 15 2011 ))
The declining trend in the company’s ability to acquire new sources of oil raised concerns among investors because natural gas prices are considerably lower than that of oil on an equivalent basis. So even if Exxon Mobil continues to provide the same output in terms of oil-equivalent barrels for the years to come, it would have lower revenues from it. You can read more about this in our article, Is Exxon Mobil Move Towards Natural Gas by Choice or by Necessity?
This new discovery, which is largely liquid, will surely help mitigate this fear to a large extent.Notes:
- ExxonMobil Announces Three Discoveries in Deepwater Gulf of Mexico, Exxon Press Releases, Jun 8 2011 [↩]
- Exxon Mobil Corporation Announces Estimated First Quarter 2011 Results, Exxon Press Releases, Apr 28 2011 [↩]