There is the saying "Everything's Bigger in Texas". Well, it's probably just as apt to say "Everything's Bigger for Big Oil". These giants of the industry need to take on big projects in order to grow their production. With a production rate of 4.07 million barrels per day, ExxonMobil's (NYSE: XOM ) total production would rank it in the top 15 for oil production and top 20 for natural gas production if it were a country. In order to not only maintain, but grow those massive production numbers, these companies need to take on big projects with long time horizons.
As long-term investors, it can be challenging to determine the outcomes of these massive projects that will have a significant impact on revenue and earnings several years from now. So let's take a quick snapshot of each company's development program and see what it will mean for the company.
Probably the most succinct way to describe Exxon's project portfolio is to say that the company is swinging for the fences. Two of its upcoming projects--the Kashagan field and the Julia Gulf of Mexico project-- won't move the needle much by Exxon's standards because there are so many players involved, but Kearl will deliver about 275,000 barrels of oil net to Exxon once the entire facility is built.
Further down the road is where Exxon's exploration starts to get more costly and more risky. The three major projects the company is exploring include: a LNG facility in Canada, an Arctic exploration program with Russia's Rosneft, and an offshore, heavy oil drilling program off the Newfoundland coast. The potential of these projects is immense. The oil in place for the Rosneft deal is greater than 400 billion barrels of oil equivalent, and the LNG facility would export 20% of Canada's total gas production. The question remains, though, if these projects can be executed in an economic fashion.
Chevron (NYSE: CVX ) In comparison to Exxon, the project pipeline for Chevon looks quite modest, but Chevron will probably reap the benefits of its projects much sooner. The companies biggest projects are related to LNG, as the company's Gorgon facility is 67% complete and its Wheatstone and Kitimat facilities will come online in 2016, if all goes according to plan. Also, the company announced it had hit 400 feet of net pay at its Coronado project in the Gulf, which is similar to its other successful Jack/St. Malo projects in the pre-salt formations in the Gulf. Once the Gorgon facility starts up, it will equate to a 400,000 barrel oil equivalent per day uptick in production net to Chevron.
Royal Dutch Shell (NYSE: RDS-A ) Of the major oil companies out there, no company is taking a bigger bet on LNG than Shell. On top of the company's 11 LNG liquefaction and regassification terminals and its 56 LNG tankers, Shell has plans for another 18 million tons if LNG facilities in the works in the US, Canada, and a floating LNG terminal in Australia that could have big ramifications for emerging natural gas regions. All told, these new facilities would almost double the company's 2012 LNG sales. In order to balance out the portfolio, the company also has an expected 250,000 barrels of oil per day slated to come online thanks to the Kashagan field as well as offshore production in the Gulf of Mexico and Malaysia.
BP (NYSE: BP ) BP has probably the most conservative development program of all the majors. Granted, the company plans to spend about $40 billion on developing these projects, but BP is not the primary operator on several of these projects with the exception of the North Sea and Azerbaijan. This may not be all that surprising considering there are still some litigation issues surrounding the Deepwater Horizon spill. Today, the company has about $29 billion in cash on the books, so its very possible that it may wait until all the issues with the spill are cleared up before making any major investment decisions. Although its $460 million annual dividend from Rosneft will certainly help make life easier.
Petrobras (NYSE: PBR ) It would be a disservice to review the oil majors and not talk about Petrobras' $237 billion development program. Between now and 2017, the company is looking to put that massive investment program to work developing the pre-salt formation offshore Brazil. In a way, the company is forced to do all this work because the country's laws mandate that Petrobras hold a 30% operators stake in every well drilled in the pre-salt formation. Petrobras CEO Maria das Graças Silva Foster has gone on record saying that the company will increase production to 5.7 million barrels of oil equivalent per day by 2020, which is more than double the current production. Unfornatuately, there are some major threats that could stand in its way.
What a Fool Believes
There are a couple ways to invest based on the time horizon for each of these companies. If you are looking for a safer pick, then Chevon may be your best bet because its projects are coming online sooner and the investment picture is a little more clear. For those who are willing to take a risk, though, then Petrobras' doubling of production could be very tempting. Keep in mind that there are no guarantees in the oil exploration business, and the promise of production does not translate to earnings for a company.
One decision factors stands out more than any other when oil majors take on these big projects; the price of oil. As oil prices fluctuate, the prospects for companies across the energy value change as well. To help you better understand these market dynamics and discover a few companies that are poised to profit from our current market, our top analysts prepared a special report that unravels the mysteries of the energy market. Simply click here and we'll give you free access to this valuable report.