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The share price of ExxonMobil (NYSE:XOM) hit a 52-week high in early trading this morning at 103.25. It is currently at 102.97 at 11:10 EDT, up 0.30% from Friday’s close. The share price low point for the 12-month period was 84.79, reached in October 2013. ExxonMobil may be a giant among giants, but its sheer size, with a market cap in excess of $442 billion, does not make it a monolith. Rather, it’s global reach allows it to ride the waves on one hand, yet stem the tide on the other. Allow me to share just two examples.
Norway
ExxonMobil, along with partners GDF Suez and Statoil ASA, is facing a showdown with the Safe oil-workers union that could easily result in a loss of 115,000 bopd if arbitration talks fail. The direct impact to ExxonMobil would be slightly more than half of the total predicted amount, if the 64,000 bopd production at the Balder, Ringhorne and Jotun North Sea field is disrupted. Natural gas production could be reduced by up to 15 mcm per day.
The Norwegian Oil and Gas Association has intervened on behalf of the oil companies, raising a legal challenge concerning the validity of Safe’s proposed work stoppage. So, although the mediation deadline is Tuesday at midnight, the court ruling will likely not come for at least another few days. The questions now are:
- Will the union wait for the ruling?
- What will the union do if the court finds their scheme to be illegal? (The law does allow for the union to go back to the drawing board to modify their approach and repeat the process.)
Kazakhstan
If there is such a thing as a horse of a different color, this is it. The oil field in question is the Kashagan. I’m not sure exactly how to pronounce that, but I think it sounds like “cash again.” And everyone seems to have a hand in the till. Stakeholders include ExxonMobile, Shell, Total, Eni, Inpx, KazMunaiGaz, and CNPC. The project, located in the north Caspian Sea, has been called “One of the most challenging projects ever undertaken,” and it is one of the largest discoveries of oil in the world in the last four decades.
As experienced oil investors will tell you, there’s always more to the story. Kashagan “was initially planned to be brought online in 2005 at a cost of $10 billion. Today, after more than eight years of delay and a cost overrun of more than $30 billion, it is still not producing any oil.” Estimated to contain some 35 billion barrels with 13 billion estimated to be recoverable at current prices, all the field has produced so far is potential. As Bobby Cox, the former manager of the World Champion Atlanta Braves baseball team, once said, “Potential means not worth crap yet.” That’s not exactly what he said, but you get the general idea.
Production was actually commenced in late 2013, but was stopped almost immediately due to a gas leak in the pipelines. It has been determine that a high sulfide content was causing hairline fractures in all of the lines. This is not a minor problem. All (that’s A-L-L, as in ALL) of the lines must be replaced. That has delayed resumption of operations until sometime in 2016. Plus, the new pipes will cost 10 to 15 times more than the ones they replace.
But, ExxonMobile is about to change things at Kashagan. XOM is set to replace Eni as the operator of the project. That could happen before the end of June. Replacing pipe goes at the same speed, regardless of who runs the operations, but you can be assured that all of the operations will be run much more efficiently and effectively with Exxon in control of the production of an estimated $4.2 TRILLION in reserves.
