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
- Why Will Exxon Mobil’s Upstream Operations Drive Its Value In The Future?
- Should Investors Worry About Exxon Mobil’s Increasing Debt?
- How Will Exxon Mobil’s Production Progress In The Next Five Years?
- How Will Exxon Mobil’s Revenue Move If Crude Oil Prices Rebound To $100 Per Barrel By 2018?
- How Will Exxon Mobil’s Revenue Change If Crude Oil Prices Average $50 Per Barrel Until 2018?
- Exxon Mobil 2Q’16 Results: Are They As Bad As They Appear?
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 [↩]