Looking At Big Oil In Light of Crude's Price Increase

Since oil prices bottomed on 17 March,closing at 43.88 bbl for NYMEX crude and 53.94 bbl for Brent,analysts have been re-examining oil industry profit forecasts for Q2,raising the estimates as prices climbed back up.Now they are calling for 20% higher profits on average.Shares of most oil industry stocks are predicted to rise 17% over the next 18 months.
For example,oil services firm Transocean has an earnings estimate that has been raised a hefty 80.9%;while Exxon Mobil's has been raised 13.7 % and Chevron's earnings estimate has been hiked 8.7%.Transocean stock is considered overvalued at this time,so it has an average analysts' recommendation of underweight.Exxon has an average recommendation of hold with a price target of 94.35,and Chevron has a hold rating as well and a price target of 113.20.
Transocean has exceeded its price target of 14.19;while Exxon and Chevron are still below theirs-they have room to climb.On the dividend front,Transocean pays 0.85%;Exxon 3.49%;and Chevron leads the pack with a 4.31% payout.*
Today,15 June,NYMEX crude closed at 59.61,and Brent at 62.70.Transocean stock closed at 17.61;Exxon at 83.72;and Chevron at 99.29.All three stocks,as well as crude oil itself,were down on the day from Greek default fears and an oil supply glut.While Transocean stock has risen sharply since the price of oil bottomed out on 17 March,rising from 14.02 up to today's 17.61,Exxon's stock has been flat and Chevron's has declined 3.2%.Only Transocean stock has responded to the oil price climb as of yet,but to the point of rising too much.*
Transocean (RIG),Exxon Mobil (XOM),Chevron (CVX)

Good Vibrations:Exxon Mobil and Tesla Motors

Even though Exxon Mobil's Q3 earnings were down 18% on the year,hurt by refining margins,the latest report was still greeted positively by Wall Street.Earnings of 7.87 billion dollars,or 1.79 a share,did beat the consensus estimate of 1.77 a share.As well,oil production rose 1.5% on the year,with liquids volumes up 5.3%.
It's better than I thought,said CNBC analyst Jim Cramer.Exxon looks good,with the production growth.It's nice to see a big dog get a good run here.*
In Monday trading,Exxon Mobil shares closed at 92.10,up 2.28,or 2.54%.The stock pays about a 2.9% dividend,and a 3 billion dollar buyback to support the share price is expected.*
Tesla Motors stock popped 8.03% in Monday trading,closing at 175.20,ahead of Tuesday's earnings report at the close of trading.Bloomberg described the stock's October results as having hit a pothole,however.It experienced a loss of 4.7 billion dollars-it's worst monthly performance since October 2010.R.W. Baird&Co. cut the stock from outperform to neutral,saying it was priced to perfection.Investors are wagering on the carmaker having tremendous future success,driving it to heights seldom seen,with the stock trading at 13.9 times sales,versus GM's 0.4 times sales.
This speculation causes the stock to be highly volatile,moving sharply at the slightest news.For example,fires that resluted from Tesla crashes on October 1 in Washington state,and in Mexico on October 18,caused the stock to crater.Tesla CEO Elon Musk himself said in an October 25 interview that the stock price we have is more than we have any right to deserve.*
Exxon Mobil(XOM),Tesla Motors(TSLA)

Exxon Mobil To Unload Japan Refining

Exxon Mobil has agreed to sell its Japanese refining unit to its Tokyo partner,Tonengeneral,for 3.9 billion dollars.The move is part of a trend by integrated oil companies to sell or spin off refinery operations in order to concentrate on more profitable exploration and production.
U.S. oil companies are bracing for a United Steel Workers union strike at their refineries.The strike could begin on Wednesday in the absence of progress in the contract talks.If the strike went three months,U.S. refinery output could be cut up to 11%.
A major concern of the union is worker safety.Eighteen workers have died in refinery accidents since the last agreement in 2009.
Asian shares opened lower on Monday on concern over an EU summit in Brussels on the Euro debt crisis,as well as the failure of U.S. growth to meet estimates.The MSCI Asia Pacific Index was down 0.37.
The New Zealand service sector saw slower growth in December.
India's Nifty Fifty futures index was down on concern that the recent rally in equities was excessive.
Exxon Mobil(XOM)
Update:Agreement between the United Steel Workers union and oil refiners including Exxon Mobil,Chevron and Valero,was reached late Tuesday,averting a strike.The ratification or rejection of the deal by a vote of union members could take weeks.

Surfers Beware:Tropical Storm Katia's Atlantic Journey

The National Hurricane Center said Tropical Storm Katia is continuing to chart its course across the Atlantic Ocean,and is expected to affect the Lesser Antilles by Friday with swells that cause hazardous surf and rip current conditions.
Realistically,some surfers seek out such exciting conditions.
The storm,which was briefly a hurricane on Thursday,is heading N/NW at 16 mph/26 kmh .This course is expected to continue with slowing forward speed over the next 48 hours.Maximum sustained winds are 70 mph with higher gusts.In the next 24 hours or so,Katia is expected to become a hurricane again.Its winds are extending outward up to 140 miles/220 km from the center.
Katia is located about 830 miles/1335 km E of the Leeward Islands.
Its ultimate destination is yet to be determined.
Meanwhile,Tropical Depression 13 has caused Exxon Mobil and BP to evacuate oil rigs in the Gulf of Mexico,while Chevron and Shell have evacuated non-essential personnel from theirs.Oil prices headed up a little when this news broke.
A tropical storm warning is posted from Pascagoula,Mississippi to Sabine Pass,Texas.
Update:Katia became a hurricane again on Friday.It currently has maximum sustained winds of 75 mph/120 kmh.The storm is moving NW at 12 mph/19 kmh.It is a category 1 hurricane,but could begin strengthening on Sunday.
Katia's hurricane force winds extend up to 35 miles/55 km from the center;tropical storm force winds extend up to 175 miles/1280 km.Hazardous surf and swells may affect the Lesser Antilles over the weekend,the National Hurricane Center said.
Tropical Depression 13 is now Tropical Storm Lee,and has caused the shutdown of 139 oil rigs,or 27% of manned platforms,in the Gulf of Mexico.This results in the loss of 48% of oil production and 33% of natural gas production in the Gulf.Remnants of
T.S. Lee could eventually make their way into the Northeast next week,as indeed Hurricane Katia could as well,should it continue on its current path.For now,though,New Orleans and Mississippi are gravely concerned about Lee's slow and rainy effects on them this holiday weekend.
Update 2:The remnants of T.S. Lee could reach the Mid-Atlantic region by Wednesday evening,bringing the potential for 5-10 inches of rain to the already-waterlogged area.It has sustained winds of 50 mph and is hugging the coast of Southern Louisiana,just barely moving at a speed of only 2 mph.Tropical storm warnings are posted from Dustin,Florida to Sabine Pass,Texas,but tourists are still wandering around New Orleans on this last holiday weekend of the summer.
Near the Leeward Islands,Katia has weakened to a tropical storm again,with winds about 70 mph/112.65 kmh.Another round of strengthening is expected to occur.The storm continues to head slowly toward the Mid-Atlantic region,but such weather will often veer eastward at the last minute,taking it on a track away from the east coast.

Philanthropy Today:Keck Foundation Key to USC Medicine

The vast complex of institutions comprising the USC medical enterprise is to be renamed Keck Medicine of USC in recognition of its major benefactor,the W.M. Keck Foundation.The foundation,established in 1954 by oil magnate William Myron Keck,funds science,engineering,medical research and undergraduate education,as well as community service projects and programs in Southern California.
The Keck Foundation has just made a 150 million dollar gift to the USC medical enterprise,which comprises two private hospitals,a doctor group,medical school and several research institutes,as well as community outreach programs.The USC Norris Cancer Center Hospital will retain its current name,but many of the other constituents of the medical enterprise will have the Keck name applied to them.
USC President C.L. Max Nikias described the new gift as a catalyst for dramatic discoveries and developments in medical research,teaching and patient care.It is helping USC's academic medical center take a momentous leap forward in its efforts to improve and advance the human condition.
USC's Keck School of Medicine had previously recieved a 110 million dollar gift from the Keck Foundation in 1999.Robert Day,CEO of the 1.2 billion dollar foundation,said the new gift reflects their commitment to bringing cutting edge science,medicine and engineering together to find new and better ways forward.
William Myron Keck,who created the foundation bearing his name,was founder of the leading U.S. independent oil producer,Superior Oil Company,which operated from 1921-84.It was eventually absorbed into Exxon Mobil.
Exxon Mobil(XOM)

Advantage View:Investing In Inflationary Times

With the recent surge in commodity prices,investors may be wondering what their next move should be.In evaluating a company as a possible investment during such times,you must ask how much their input cost is as the cost of final goods;and whether they can pass this cost on or are vulnerable to rising commodity prices.
RiverFront Investment Group sees energy and mining companies as winners in inflationary scenarios.They also like Monsanto,since farmers will plant more crops during such times,and Monsanto produces the seed they need.McDonald's benefits because,with groceries more expensive,McDonald's is more competitive for your food dollars.Commodity firms such as Exxon Mobil would also do well.
Equities in general are an inflation hedge.For goods traded on the global marketplace,we do have inflation issues there,and that's where I would focus,says Doug Sandler,Chief Equity Strategist at RiverFront.
RiverFront Investment Group is an independent,SEC-registered investment advisor,providing asset management,investment advice and leading edge market insights.They are located in Richmond,Virginia.
Monsanto(MON),McDonald's(MCD),Exxon Mobil(XOM)

The Energy Industry's Perspective

All of the United States' 140 million jobs depend on energy,in the view of Exxon Mobil.The World Energy Council says energy is the backbone of every economy,Exxon points out.That being the case,our energy portfolio must be expanded,not restricted.Despite a fall in demand,energy companies such as Exxon are continuing to invest billions of dollars in exploration and production.Exxon is averaging 25-30 billion a year in worldwide projects.These oil and gas activities support more than nine million U.S. jobs.More access to U.S. resources would add even more positions.The total value contributed to the U.S. economy by oil and gas in 2007 alone exceeded one trillion dollars,or about 7.5% of the Gross Domestic Product.
Developing all possible energy sources,including oil,natural gas,coal,nuclear and alternatives will keep energy costs down,create new jobs and improve consumer choices,Exxon believes.
The World Energy Council holds that sustainable development is not only about the environment.Policies which fail to contribute to economic and social development will themselves prove unsustainable.In order to support U.S. economic recovery and global competitiveness,the oil and gas industry is calling for sound and stable regulatory,legal and tax policies to encourage energy investments.
Exxon successfully led a consortium to access to an Iraqi oil field last week.As well,Exxon is purchasing XTO Energy for 31 billion dollars,seeking XTO's shale oil and gas holdings and expertise.

Exxon Mobil's Biotech Connection

Exxon Mobil isn't developing alternative fuels on its own.The Irving,Texas company has partnered with Synthetic Genomics,which was founded by Dr.Craig J. Ventner,a pioneer in the field of genomic research.SGI,which is privately held, acquires knowledge of organisms for energy and environmental applications.Exxon says that their goal is to produce a commercially scalable,renewable fuel that is compatible with gasoline and diesel.
Algae fuels would fit into existing infrastructure such as transportation networks and refineries,which would save untold amounts of capital.Their production wouldn't require arable land and fresh water,and could be accomplished on far fewer acres than other biofuels.As well,algae not only do not emit the greenhouse gas carbon dioxide;they actually absorb it.
Despite its promise,algae biofuel would be a supplement to hydrocarbons for the foreseeable future.Moving algae biofuel from the lab to the pump could require decades of work by a multidisciplinary scientific team,Exxon says.Enthusiasm for turning one-celled organisms into clean energy wells is tempered by the sobriety of a petrochemical titan.

Exxon Mobil Explores Alternative

After lagging behind other integrated oil companies in the development of alternative energy sources,Exxon Mobil has listened to many of its shareholders and gotten down to the future-distant though it may be.It is to spend 600 million dollars to develop transportation fuel from algae.The production of algae-based fuels is at least 5-10 years off.One acre of algae can yield about 2,000 gallons of fuel.
Chevron and BP have been multisource energy companies for some years now,while Exxon limited itself to improving batteries for hybrid and electric vehicles,and funding basic research.The Rockefeller family,whose ancestor John D. Rockefeller founded Standard Oil,the precursor of Exxon,have been especially vociferous about Exxon's reluctance to embrace alternative energy production.

Exxon Scores Largest Profit

Exxon Mobil reported the largest profit in the history of the world.Q3's record oil prices helped the Irving,Texas firm achieve a 58% increase in net income,to 14.83 billion dollars.The increase amounted to 2.86 a share.Revenue was 137.74 billion,up from 103.34 billion year over year.Exxon(XOM) plans to maintain current production levels,although the targets will be reviewed in March of 2009.It intends to spend 30-40 billion a year on exploration.The recent slump in demand,as well as down time for maintenance,are expected to cut Exxon's Q4 earnings by about 0.5 billion dollars.

Newfoundland's New Field

The Canadian province of Newfoundland and Labrador has finalized arrangements for development of its Hebron oil field,which is about 217 miles-or 350 kilometers-off its southeast coast.Hebron follows the province's three other oil fields of Hibernia,White Rose and Terra Nova.Project leader is Chevron(CVX),with a 26.63% stake.Also involved is Exxon Mobil(XOM),with the majority 36.04% stake.The province itself owns a 4.9% stake.The field is expected to yield 700 million barrels over 20-25 years,generating revenues of 20 billion dollars Canadian at 87 dollars U.S. a barrel.Hebron may be operational by 2016.

Top Performers

The top performers in the Dow Jones Industrial Average for Q2 were Chevron(CVX),up 13.77,or 16.1%;Wal-Mart(WMT),up 3.52,or 6.7%;and Exxon Mobil(XOM),up 3.55,or 4.2%.

Big Projects,Long Lead Times

Exxon Mobil's(XOM) investment levels have grown from year to year,CEO Rex Tillerson noted,but when resources are ready to be developed,new technologies are often required.In consequence,a very large and complex project may be delayed for 10 years before Exxon invests in it.Exxon's shareholders have been paid ever-growing dividends,and have benefited from over 118 billion dollars U.S. in share repurchases over the past several years.Exxon's income taxes have increased at a faster rate than its profits.It paid an effective tax rate of 44% in 2007.Shareholders will be hurt by new taxes,and ultimately the consumers will have less energy resources because of them.Taxes are part of the economic analysis of whether you can take a risk and invest.Much of the technology lets Exxon manage the risk of the resource and the care of the environment.Exxon is a huge consumer of commodities itself,but it is built to be the most efficient,regardless of the economic conditions that swirl around Exxon,Mr.Tillerson observed.

Inside Exxon Mobil

According to Exxon Mobil(XOM) CEO Rex Tillerson,Exxon has a robust,very deep portfolio of opportunities,yet the very high cost environment is beginning to show up in its projects.Exxon's management systems help it mitigate about a third of the cost pressures through technology,project planning and execution.You have to grow a business organically,but where it makes sense,Exxon is always evaluating acquisitions.It has a unique capability to integrate them and benefit its shareholders.The high price of oil is partly due to the weakness of the U.S. dollar.That amounts to a third of the disconnect with supply and demand.Geopolitical uncertainties and speculation also contribute to the disconnect,Mr.Tillerson said.

Exxon Expands Search

Exxon Mobil(XOM) has ramped up its quest for new hydrocarbon fields.In 2007,Exxon replaced 76% of its production-the least in 14 years.A map of the Irving,Texas firm's drilling plans to meet this challenge is literally a map of the world.From Alaska to Indonesia,Exxon will be returning to its wildcat roots,drilling wells in areas not known for their oil and gas reserves,such as inland Germany,Ireland,Greenland,New Zealand and Madagascar.Using advanced technology that allows drilling from huge floating rigs up to two miles into the ocean floor,Exxon will explore off the coasts of Qatar,Angola,Nigeria and Libiya.By 2012,it expects 50% of its production to come from West Africa,Central Asia,Russia and the Middle East-up from today's 36%.Other exploration sites include Colombia and Brazil.The Brazil project is near Brazil's recent large discovery in the Tupi field.The largest Western oil company,Exxon will increase its capital spending by 25% to 125 billion U.S. over the next five years.

Exxon Mobil's Shiny Quarter

Exxon Mobil(XOM),the largest western oil company,has reported brilliant results for the fourth quarter of 2007.The Irving,Texas firm has again justified its reputation for superb management.It's 11.7 billion dollar profit was the biggest in U.S. corporate history.Year over year,it posted a 40.6 billion profit.Its revenue was 116 billion.The money was made on higher oil and natural gas realizations,amounting to per share earnings that were 15 cents above estimate.Exxon even made money on downstream refinery operations at a time of rising costs.It bought back 88 million shares to stabilize prices,but also had to pay 30 billion in taxes.By some calculations,Exxon may no longer be the world's largest oil company.Petro China(PTR) is theoretically greater in terms of market capitalization,being worth an estimated one trillion dollars.China has dismissed such speculation,as it has no intention of relinquishing its control of PTR.The Chinese system is not equivalent to western capitalism,within which Exxon works.At any rate,the stupendously successful Exxon isn't concerned about such chatter.Among western oil companies,BP ranks second,while Royal Dutch Shell(RDSa) is third and Chevron(CVX) is fourth.Goldman Sachs(GS) says oil will be higher in 2008,with an average price of 95.00 U.S. a barrel.To ensure future production,Exxon is exploring several blocks off the coast of Libya for oil and gas deposits.Some of them are in deep water.At the same time,it is using Enhanced Oil Recovery technology at the mature Means Field in west Texas to greatly increase the field's output.As well,advanced 3-D seismic imagery of a Gulf of Mexico resivoir revealed new hydrocarbon deposits,which more than doubled production rates.In Colorado's Piceance Basin,advanced technology is allowing Exxon to unlock natural gas buried in rock up to 16,000 ft./4876.8 m deep.Shares of XOM were down in early European trading this morning.

Far North Holds Fossil Fuels

Huge oil and gas projects are likely to commence in Canada and Alaska within the next 10 years.Some of the final frontiers in North American drilling are poised for extraction.In Canada's Northwest Territories,the Mackenzie Gas Pipeline is to wind 750 miles/1206.9 km along the Mackenzie River.The river is Canada's longest,with 1068 navigable miles/1718.7 km from Great Slave Lake to the Beaufort Sea.Just west of the river are the Mackenzie Mountains,which rise to over 9,000 feet/2743.2 km.The Mackenzie Valley is characterized by its boreal forest ecosystem.An estimated three billion birds breed in the forest,making it the motherlode of North American bird life.Many subsistence communities,the First Nations,live off this land,co-existing with wolves,moose and grizzly bears.Roads,compressor stations,processing plants,airstrips,feeder pipelines and housing for 8,000 construction workers need to be installed in order to build and support the pipeline,which will transport natural gas from a minimum of three production fields to points south,including the tar sands of Alberta.The tar sands plants heat the sands up with natural gas in order to extract the heavy crude oil contained in the sand.Big stakeholders in the tar sands include Suncor Energy(SU) and Marathon Oil(MRO).The pipeline project will cost an estimated 14 billion dollars U.S..Most of the First Nations along the Mackenzie support the pipeline,as they will get a one-third ownership stake.The territorial government is strongly behind it as well.Meanwhile,the U.S. Minerals Management Service will hold a lease sale on February 6 for 46,000 square miles/74,027.8 square km of outer continental shelf in the Chukchi Sea,which is off Alaska's northwest coast.The area contains an estimated 15 billion barrels of conventionally recoverable oil and 77 trillion cubic feet of conventionally recoverable natural gas.No drilling will occur within 50 miles/80.465 km of shore.The lease sale is supported by the state of Alaska,local officials and tribal leaders.The buffer will provide for wildlife migration and subsistence hunting.The Chukchi oil reserves are greater than those in Brazil's Tupi oil field,which contains about eight billion barrels.Companies such as Exxon Mobil(XOM) and Chevron(CVX) may be bidding for the leases.

Exxon Mobil Surpassed

Exxon Mobil(XOM)is no longer the largest company in the world.That distinction now belongs to Petro China(PTR).Petro China is worth an estimated one trillion dollars.In an initial public offering on the Shanghai exchange yesterday,the oil giant's shares tripled in value.Last week,Exxon Mobil reported earnings down 10%.The price of crude oil is at record levels,which means refiners such as XOM aren't able to make as much money off their refining operations,since the competitive nature of gasoline sales prevents them from raising gas prices very much.This is known as a "narrow crack spread." As well,production was down 2%,with new oil fields to replace declining ones being very hard to locate;what is more,the countries where XOM is exploring and drilling are demanding a bigger cut,and exploration and drilling costs are rising.Big oil is feeling a big squeeze.Chevron(CVX)reported nearly identical results for the third quarter.Investors will have to adjust to these smaller profits,but they are still in the many billions of dollars.According to Jerry Castellini of Castleark Management,the energy market is still in the early phase of an ascent.In order to fund enough of an investment to keep the oil flowing,a price of 100-200 dollars a barrel is needed.So far,the capital flow hasn't reached the level of a secular bull market.Oil price rose 17% in October-the biggest increase since Hurricane Ivan struck in 2004.Shares of both XOM and CVX rose on Monday,even as crude oil retreated 2.03%.This morning,shares of XOM were up in European trading,as was the price of crude.Many analysts are recommending energy stocks as a good long-term holding.