Comments on the XOM/Hebron Story in the News Today

Updates

March 13, 2013: According to Oil & Gas Journal:

ExxonMobil Corp. let a $1.5 billion engineering, procurement, and construction contract to Kvaerner ASA for the Hebron heavy-oil project off Canada’s eastern coast, Kvaerner said. The contract total includes some work already completed.

January 13, 2013: Exxon Ventures Into Less Lucrative Waters To Increase Crude Output -- SeekingAlpha.com.

The Hebron project is not highly lucrative because its crude is heavier as compared to Brent or WTI Crude. Furthermore, as mentioned earlier, the project's cost has ballooned by billions. But Exxon's output has now fallen in five consecutive quarters.

While it has made significant developments in unconventional fuel and is now looking to tap into the British shale gas sector, conventional crude has been sitting in the backseat. The management has little choice but to work with what is available.

In my original post I said $14 billion was a not a big deal for a company the size of XOM. I was way wrong. I was thinking of XOM's market cap, but when looking at $14 billion against its cash ($13 billion) and its operating cash flow ($54) and $14 billion is a significant investment by XOM.

Original Post

I wasn't going to post a link to the XOM/Hebron field story that was published earlier today.

Although the story seemed to get a fair bit of press, it didn't seem all that big a deal. I sent the following note to a friend, and thought I might as well post it. The note may or may not be ready for prime time, but I thought I would at least throw it out there for folks to consider.

Here's my initial thoughts on the XOM/Hebron story:

One of the nice things about following the Bakken, it helps me put things into perspective.

The XOM / Hebron story is an example. $14 billion to develop the field?

In North Dakota, 200 wells / month x $10 million --> $2,000 million --> $2 billlion/month. So the XOM/Hebron field is 7 months of drilling in the Bakken.  And that's just the drilling. Does not include cost of leases; pipeline/rail infrastructure; natural gas gathering and processing; etc, etc.

700 million bbls? The Bakken -- everyone agrees at least 3 billion bbls recoverable from the Bakken; Harold Hamm says somewhere between 25 and 50 billion.

Hebron field: 150,000 bopd by 2017.

What this tells me, for the story to get this much press: XOM is in deep trouble finding / exploiting large fields. $14 billion sounds like a lot of money, but the amount of production is not exciting for a company the size of XOM.

And, on top of this, it's off-shore. A bit more difficult and expensive than the Bakken, I would assume.

$14 billion/700 million --> $20/bbl. Hmmm.

Except for this:

"Exxon is operator of the Hebron development and owns a 36 percent stake, according to the project’s website. "

So, is the $14 billion only XOM's portion? 36%?

$14 billion is 36% of what? $38 billion.

$38 billion/700 million bbls --> $50/bbl. More believable.

That's what I wrote. Probably not ready for prime time, but it is what it is.