Oil giant ExxonMobil Corporation (XOM) set its capital budget for 2011 at $34 billion, which represents a 5.6% increase from the 2010 level. The company also intends to invest $33 billion to $37 billion annually through 2015, significantly higher than its previous target range of $25 billion to $30 billion a year through 2014.
Exxon’s increased capex guidance is suggestive of its intent to expand production level through its major projects. These include the oilsands venture in Canada, natural-gas in the U.S. and the Middle East, as well as oil exploration overseas. Notably, the company said that 80% of its forthcoming production is expected to be crude oil over the next five years.
Importantly, Exxon’s total output will likely grow 3% to 4% in 2011 and 4% to 5% per year on an average through 2014. The growth will be fueled by 11 major upstream projects, which are scheduled to come online through 2013.
This year, Exxon expects to produce net 120,000 barrels of oil equivalent per day (Boe/d) from the project that were initiated in 2010. By 2016, the company estimates output from these projects to reach 1.4 million Boe/d.
Political unrest in the Middle East and North Africa has prompted oil companies to remain optimistic on a solid rebound in prices. Oil is currently trading at above $100 per barrel.
Accordingly, oil majors are boosting their capital plans primarily for their upstream segments. Exxon also expects global energy demand to grow 35% by 2030 from the 2005 level.
Exxon’s major rival, Chevron Corp. (CVX) expects to spend $26 billion primarily on exploration and production this year. Recently, ConocoPhillips (COP) also disclosed its 2011 capex program of $13.5 billion, allocating 90% to the upstream segment.
Coming back to the world’s largest publicly traded oil company, ExxonMobil’s fourth quarter 2010 earnings shot up 53% year over year, driven by higher commodity price realizations, improved refinery margins and solid chemical contributions. Its production volumes also surged significantly and we foresee further expansion over the next several years through traction in hydrocarbon exploration in unconventional areas outside the U.S.
ExxonMobil is the world’s best-run integrated oil company given its track record of superior return on capital employed. As the largest publicly traded oil company, ExxonMobil has long been a core holding for investors seeking a defensive name with continued dividend growth.
We maintain our long-term Neutral recommendation on the stock. Exxon also holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
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