Exxon Facing Questions About Natural Gas Push

DALLAS (AP) – Exxon Mobil Corp. rode higher oil prices to a $30 billion profit last year. But shareholders at its annual meeting Wednesday are likely to ask pointed questions about its big push into natural gas.

Since buying XTO Energy last year for $29 billion, Exxon has become the largest natural gas company in the United States. It now owns more gas than crude oil.

So far, the deal hasn’t paid off. Natural gas prices are below where they were when the deal closed. That’s one reason, analysts say, Exxon’s stock has lagged behind that of rivals Chevron and ConocoPhillips.

Gas drilling is also attracting more attention from environmentalists and government officials because of the potential for contaminating underground water supplies.

Exxon shareholders will vote Wednesday on whether to disclose more information about hydraulic fracturing or “fracking” — the pumping of tons of water and chemicals into the ground to break open rock formations and extract the gas. Chevron, which has boosted its own natural gas business in the past year, faces a similar vote at its own shareholder meeting Wednesday.

A shareholder resolution asks the Exxon board to report this fall on the known and potential environmental risks and what the company is doing about them. The board opposes the measure, saying gas can be produced in an environmentally safe way.

Such controversies are not new at Exxon Mobil meetings. Every year, shareholders face a long list of resolutions on everything from greenhouse gas emissions to gay rights.

CEO Rex Tillerson will review 2010, a comeback year of sorts for Exxon after it made $19.3 billion in 2009, its smallest profit in seven years.

Exxon shares rose 7 percent last year compared with a 19 percent gain at Chevron and 33 percent at ConocoPhillips. They’ve been more competitive so far this year. Still, only four of 17 analysts surveyed by FactSet have a “Buy” rating for Exxon.

Benchmark Co. analyst Mark Gilman said Exxon Mobil’s share price — it closed Tuesday at $81.29 — isn’t justified by future growth potential.

Argus Research analyst Phil Weiss said Exxon Mobil has lots of cash, little debt and a tradition of efficient operations. He has a “Buy” rating on the stock. But he’s concerned about the short-term effects of the XTO deal, which could be an even bigger handicap if natural gas prices remain low.

“In the current environment, that’s a big disadvantage,” he said.

Weiss said Exxon also appears to be having a hard time finding new sources of oil. The company increased its petroleum reserves last year mostly by buying companies instead of discovering new fields, he said.

But a 40 percent jump in oil prices over the past 12 months has helped offset the weakness in natural gas prices. Exxon Mobil earned $10.65 billion in the first quarter of this year, its biggest quarterly profit since a record $14.83 billion in the third quarter of 2008.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)


One Comment

  1. RussP says:

    Not sure why more companies and our government aren’t doing more to explore natural gas use for fleet vehicles, electric generation, homes, etc. Our country has a lot more of it than oil so it would help wean us off foreign oil imports, it’s cleaner burning than oil and even with some of the drilling issues, it still seems less damaging to the environment than when there’s an oil spill. We’re a long way from solar and wind being able to supply much of our needs, natural gas may the best interim choice.

  2. darrell says:

    moving into natural gas is a long term investment for exxon. here is why.
    as oil will most likely continue at high and even higher costs in the future, the cost of home heating oil will continue to rise making it diffecult for northerners who depend on it to afford. as the infrastructure of natural gas expands due to drilling and the cost goes down there will be a push to replace heating oil with natural gas.
    by getting gas leases and infrastructure early exxon stands to be way ahead of the game when the day comes when economic need forces northern climates to look for new ways to heat their homes in the winter.

    if you own it, and leaving it in the ground comes at virtually no expense thats great, and by purchasing existing infrastructure now, you make lots of profit later.

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