Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



ExxonMobil Is Spending Plenty but Growth Is Just Around the Corner

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

In mid-March, the world's largest listed oil company, ExxonMobil (NYSE: XOM  ) , launched a $5.5 billion bond offering. For most companies, tapping the debt market for extra working capital would not be such an issue. However, this is the first time that Exxon has tapped the corporate bond market for cash in two decades, which underlines the cash flow issues oil and gas majors are currently having to grapple with.

Still, this bond offering hardly does anything to tarnish Exxon's highly impressive balance sheet. At the end of 2013, it had net debt of $18 billion, a gearing ratio of 10% -- the new debt issue will push gearing up to 14%. Further, it is paying almost nothing to borrow this extra cash. The debt offer is broken down into five lots, the smallest of which pays interest of 0.24% and the largest of which pays 3.2% -- after factoring in inflation, these interest rates become negative in real terms.  

Nevertheless, Exxon's first dash for cash in two decades highlights the cash crunch the company is having to deal with. It reported record capital expenditures of $42.5 billion during 2013, a figure only just covered by cash generated from operations of $45 billion. Unfortunately, it had hardly any cash left over for dividend or share repurchase commitments, which totaled $28 billion during the year.

With cash flows dwindling, Exxon's management plan to bring a record 10 new projects this year, adding production of 300,000 barrels of oil equivalent per day. Additionally, it has cut capital spending for 2014 to $40 billion, which is then expected to average $37 billion per year during 2015 to 2017.

What's more, Exxon should see a significant boost to earnings from the long awaited start-up of the Kashagan oil field later this year. The Kashagan field is the largest oil discovery in 40 years, and the project to develop the field has required so much investment and expertise that a consortium of oil majors has been required to develop it. The consortium includes Exxon, Royal Dutch Shell (NYSE: RDS-B  ) , Italy's Eni (NYSE: E  ) , and France's Total (NYSE: TOT  ) .

Size and complexity
Kashagan is not just one of the world's largest oil fields, but it has also turned into one of the most complex and expensive oil projects ever. From an initial cost estimate of $57 billion for the life of the project, its development is now expected to cost a staggering $136 billion over its lifetime -- that's 138% more than originally planned.

Kashagan is no simple find-drill-and-produce well. No, the Kashagan field is located within Kazakhstan's zone of the Caspian Sea, meaning that to avoid damage from pack ice in a shallow sea, which freezes for five months of the year, much of the project's infrastructure had to be built on artificial islands. As a result, the project required the construction of a landmass to ensure its long-term survival.

Things were progressing to plan, albeit slightly behind schedule and over-budget as of last September when, finally, the project started up -- but then disaster struck, as a gas leak forced production to stop. To all involved, this was a huge surprise since Kashagan, as you can imagine, has been constructed using the most cutting-edge technologies throughout.

Tests have been made on the pipeline and surrounding environment and results are expected during the next month or so, which should give engineers the data they need to fix the problem and recommence production. To help, precautions have been taken and replacement pipes have been ordered in order to cope with various scenarios, so once engineers know what the problem is, it can be fixed without delay.

In the end, it should be worth it
All in all, despite these delays and troubles, Kashagan is a project worth chasing and, once online, it will add a significant boost to the bottom lines of all involved. For them, sustained production from the field will mean a much-needed boost to cash flows, which have come under pressure during the past few years. In particular, the Kashagan oil field is expected to contain 38 billion barrels of oil. So, if oil continues to trade around $100 per barrel, the project, over its lifetime, could yield revenues of $3.8 trillion -- need I say more? (Exxon and Shell each have just under a 17% stake in the project, amounting to almost $650 billion in revenues each over the life of the project.)

Exxon's dash for cash is nothing to worry about and at such low interest rates the company is almost borrowing the money for free. In addition, it has plenty of new projects coming online during the next two years, which should boost cash flows.

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling "OPEC's Worst Nightmare." Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2896743, ~/Articles/ArticleHandler.aspx, 9/1/2015 2:08:03 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rupert Hargreaves

Rupert has been writing for the Motley Fool since December 2012. He primarily covers tobacco and resource companies with a passion for value-oriented investments. .

Today's Market

updated Moments ago Sponsored by:
DOW 16,141.46 -386.57 -2.34%
S&P 500 1,926.06 -46.12 -2.34%
NASD 4,678.79 -97.72 -2.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 1:48 PM
E $32.61 Down -0.68 -2.04%
Eni S.p.A. (ADR) CAPS Rating: ***
RDS-B $50.69 Down -2.24 -4.23%
Royal Dutch Shell CAPS Rating: ****
TOT $45.54 Down -0.86 -1.85%
Total (ADR) CAPS Rating: *****
XOM $72.33 Down -2.91 -3.87%
ExxonMobil Corp CAPS Rating: ****