Posted by: thefinancedude | March 5, 2008

Oil Production Shocker in Plain View

A spate of news articles are hitting the wires that Exxon Mobil is ready to invest $125B in spending over the next five years to offset declines to aging production.  A slew of sites are offering the requisite puff piece while I’ve been able to locate some other hard data around the sphere.

Consider the information from these articles:

Exxon Mobil Unveils $125B Spending Plan

Exxon Mobil Executive Forecasts Volume Growth For Oil & Gas

Nowhere on the above two articles does it state what they’re getting for their $125B.  No numbers are offered which led me to question why.  So I located details on the output of this investment from these two, separate sources.

Exxon Mobil will put $125 billion in big projects, CEO says

Exxon Mobil plans to invest over $125 billion on raising production

I could be wrong, but they’re not content with output at it’s current level as it’s declining.  To make up for this they are plowing free cash into producing more “oil equivalents.” While oil equivalents are not crude, we measure output in a crude like per barrel output.  So back of the envelope calculations puts the cost of this marginal output, @ $50B (two years of investment and you know it’s going to cost more)/725K = $69000 per barrel of oil equivalent.

I’m most likely oversimplifying this but how do you justify spending this kind of cash on such a marginal gain?  I suppose they’re planning for MUCH higher costs than we’re being led to believe.  Stop thinking about $5 gas or even $10 and start forecasting your balance sheet when gas strains it all the way up to $10 and determine if you can stomach the details any further. 

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