Exxon Mobil No Longer an Oil Company

Written By Christian DeHaemer

Posted March 7, 2011

The Wall Street Journal reported Exxon Mobil raised its outlook for the global demand for natural gas through 2030 to 2 percent, up from 1.8 percent it predicted last year.

This might not seem like much, but it is part and parcel of the new oil company majors.

You see, XOM isn’t primarily an oil company anymore…

It’s a natural gas company.

In its most recent quarterly report, XOM stated it was having a hard time replacing its oil reserves.

This isn’t something they’re blowing bugles about; in its latest reserve report, the company showed it added 3.5 billion of oil equivalent barrels to its proved reserves.

This is equal to 209% of 2010 production, and it represented the 17th consecutive year that Exxon has been able to replace its annual production reserves.

Sounds great, right?

This has become expected in the best oil company in the world… XOM is a monster that has averaged 121% reserve-to-production replacement over the past decade.

Clearly, they could give a rat about Peak Oil.

But then there’s that phrase “barrels of oil equivalent”, or boe…

Oil equivalent isn’t oil equal.

Over the past ten years, XOM has replaced 100 actual barrels of oil with 95 barrels of actual oil (and we won’t even go into grades of oil)…

The remainder of the boe is natural gas.

XOM has bought, or found, 158 boe of gas — mostly through its purchase of XTO Energy last year.

The upshot of all this is that the company now has a balance of 53% natural gas to 47% oil.

Other oil majors are also having a hard time finding replacement oil. Shell’s gas production will also eclipse its oil production this year.

Sea change

There is a slow, grinding change going on in the energy world.

The United States — and in fact, the world — is undergoing a natural gas boom due to new drilling techniques.

The new quantity of natural gas coming online has kept the price mired below four dollars per million btu for ages now…

natgas march 7

While at the same time, the price of crude has jumped $25 a barrel in the past two months.

Natural gas is abundant, cheap, and clean

And if the United States had an energy policy — one beyond immoral corn ethanol subsidies and funding Government Motors into its next bankruptcy — we’d solve our energy problems for the next 50 years.

Other countries, most notably those in Asia and the Middle East, are embracing natural gas in all its forms — including liquid and compressed natural gas.

I’ve been talking about Chicago Bridge and Iron (NYSE: CBI) since it was at $8 a share…

This company is a world leader in building the infrastructure for such as ports and storage facilities.

As of December, the company has a backlog of $6.9 billion of which 80% was outside the United States.

This backlog rivals that from 2007, and $3.5 billion came from the fourth quarter alone.

The answer is obvious


As the world runs out of cheap oil, natural gas infrastructure will continue to benefit.

CBI is one company I want to own for the next ten years, though I must say it is getting priced to the point where it must continue to hit its numbers. It is no longer a rebound play.

If you are looking for high returns…

The other way to play the oil/natural gas phenomenon is to go after oil explorers.

I’ve been buying and selling small cap oil companies in out-of-the-way places for more than a decade. Company’s like Heritage Hydrocarbons, Tullow Oil, and Dragon Oil have all returned more than 1,000 percent…

Last year a small, little-known company struck oil at three wells in Mongolia. It is estimated that they have over 613 million barrels.

On February 18, 2011, Mongolia signed a deal with the London Stock Exchange to take over management of the Mongolia Stock Exchange.

When this deal comes to fruition, London funds will be able to easily buy and sell Mongolian stocks with its safety and liquidity backed by the LSE.

This is a huge deal — one I expect will result in significant share price appreciation.

You want to own these shares before this comes to pass.


chris sig

Christian DeHaemer
Editor, Wealth Daily

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