For the past five years shares of ExxonMobil (NYSE:XOM) have lagged behind their American peers. In my opinion, this can be largely attributed to a relative lack of liquids production growth since 2006. 

Cop Cvx Xom Charts

Source: YCharts

We can see here that Exxon has trailed its peers, especially ConocoPhillips (NYSE:COP). Over the last four years Conoco has invested heavily in the Bakken, Permian, and Eagle Ford, all three of which will drive Conoco's overall production higher by 3%-5% in the coming few years. Exxon, however, has been slow to adapt to the new reality of shale oil.

Those looking for a big change from Exxon in 2014 will be disappointed: Exxon's move into shale liquids will continue to be gradual. While Exxon is moving into shale liquids, it is doing so only as a part of the company's overall picture, a picture that also includes deepwater, Canadian oil sands, the Russian Arctic, and a myriad of other global projects. This article will look at some of Exxon's spending priorities for 2014 and beyond. 

Xom Production Addons

XOM Investor Presentation

This chart shows us some of Exxon's select projects through 2017. Most of the projects, as you can see, are outside OECD countries and in places where politics are a bit shakier. This includes West Africa, Kashagan (Kazakhstan), Banyu Urip off the coast of Indonesia, and Sakhalin in the Russian Arctic. 

Such 'international' geographies often carry uncertainties. However, handling these uncertainties is Exxon's specialty. In many of these places Exxon enjoys long-standing relationships with partners. In addition, Exxon's size and deep pockets are ideally suited for these larger, international oil and gas projects, for which Exxon faces only limited competition. However, focus on these broad, often far-flung geographies has caused Exxon to miss out on higher-growth projects in the U.S. and Canada.

A piece of the puzzle
Exxon hasn't totally neglected North American opportunities. In fact, Exxon is seeing some impressive liquids production growth in the Bakken, the Permian and the Marietta (which is in Oklahoma and Arkansas). 

Xom Bakken

XOM Investor Relations

This above chart shows Exxon's production in the Bakken, most of which is either oil or natural gas liquids. Overall, the Bakken is Exxon's shale oil growth engine in North America. Exxon has almost a billion barrels of reserves in the Bakken, with the potential for more through bolt-on acquisitions.

The big picture

Xom Deepwater Growth

XOM Investor Relations

This picture does not illustrate Exxon's future spending needs, but merely how management thinks overall liquids consumption needs will change in the coming 25 years. However, I believe that this chart does show where Exxon's long-term priorities lie. For example, Exxon continues to see shale oil (illustrated here as 'Tight oil') as only a small contributor to future energy needs. Also notice that management sees production growth from tight oil as rather limited in scope.

I disagree with this assumption. In the past five years, U.S. liquids production from shale has grown exponentially, and most big investors in shale continue to grow production well into the double-digits. 

Bottom line
Exxon's long-held strategy is to keep a tight hand on the purse-strings and invest only in the safest, highest-return projects. This strict discipline has led to Exxon returning far more cash to shareholders than its peers have. Overall Exxon remains an integrated, global energy company with eggs in many baskets. Management follows this strategy intentionally, and does so with the intent of making Exxon a low-risk play.

As an energy company, I believe that Exxon is a superior low-risk investment but will provide only modest production growth over the next few years. In this market, however, it is oil production growth that gets rewarded. This, I believe, explains Exxon's subpar returns over the last few years. Since the company's strategy remains much the same in 2014, I believe that returns will continue to be modest. Also, several other names, such as ConocoPhillips, will continue to provide better returns over the coming years.

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Casey Hoerth owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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