Exxon may pump up assets as valuations fall

AMSTERDAM: ExxoN Mobil, the world’s largest oil company, may embark upon an acquisition spree this year and snap up assets at “extremely cheap prices” to boost production growth, Sanford C Bernstein & Co said.

“Such a scenario could be on the game-changing scale last seen with the wave of mergers in the late 1990s, when the low oil price also put a lot of oil companies under duress,” Neil McMahon, a London-based Bernstein analyst, said in a note on Friday.

The Irving, Texas-based company expects to spend as much as $30 billion in 2009, or 20% more than last year, to lease drilling rigs and expand fuel plants, CEO Rex Tillerson said December 11. The budget may decline by $1 billion or $2 billion from this estimate should falling prices for steel and other materials reduce project costs, he said.

Oil majors including Royal Dutch Shell, Europe’s biggest oil company, BP and Norway’s StatoilHydro are scaling back budgets or delaying projects amid a slump in oil prices. Oil fell 54% last year, the first annual drop since 2001 and the biggest loss since trading started. Prices reached a five-year low of $32.40 a barrel on Dec 19.

Exxon Mobil, which refines about 7% of the world’s oil into fuels such as gasoline and diesel, has ample cash and untapped credit lines to expand in any of its three main businesses, petroleum production, refining and chemicals, Tillerson said last month. “Exxon Mobil is in a relatively unique position, as it might be able to change the industry structure forever and gap away from competitors in 2009,” McMahon said.

It would be the “ideal time” to form a joint venture with Petroleo Brasileiro SA as the Brazilian company appears to be struggling with financing and Exxon wants a bigger role in Brazil, McMahon said. Berstein has an “outperform” rating on the stock.

Petrobras, whose shares fell 48% last year, needs money to pay off $3 billion of maturing debt and fund development of the Tupi field. Its borrowing costs are rising after oil prices tumbled and the credit crisis curbed demand for emerging-market debt.

Petrobras became a darling of investors after its discovery in November 2007 of the Tupi oil field, the largest find in the Americas since Mexico’s 1976 discovery of Cantarell.

Tupi contains an estimated 5 billion to 8 billion barrels of oil. It may be at the center of a new offshore oil province that Haroldo Lima, head of Brazil’s oil regulator, said could contain 80 billion barrels of oil, enough for more than 10 years of US consumption.

“At present, Exxon Mobil looks like the only major with negligible production growth in the long term,” McMahon said. “Although this has not hampered the company’s performance in the past, all the same, some investors may prefer to see actual production growth on the cards.”