As the largest energy company in the world, ExxonMobil (NYSE:XOM) doesn't seem like an ideal candidate for growth investors. The typically slow-and-steady oil and gas behemoth is usually more closely associated with value and dividends. After all, those are the elements that have defined ExxonMobil over the past several years.
But you might want to think again before you write off ExxonMobil as a lumbering giant. That's because in addition to its reliable dividends, ExxonMobil has a number of projects lined up this year and over the next few years. Combined with a recent asset trade with upstream exploration and production company LINN Energy (NASDAQOTH:LINEQ), these initiatives have the potential to put some life back in the company's production. Before long, ExxonMobil might just prove that it's a growth stock, too.
Wheeling and dealing
ExxonMobil is fresh off a deal with upstream master limited partnership LINN Energy involving LINN's prized asset in the Permian Basin. Acquiring LINN's 25,000 acres in the Midland Basin section presents high potential for liquids production, which is where ExxonMobil is shifting focus. From a production standpoint, ExxonMobil will absorb approximately 2,000 barrels of oil equivalent per day of current production, and LINN will retain about 3,000 barrels of oil per day.
In return, LINN receives a portion of ExxonMobil's interest in the Hugoton field that stretches across Kansas and Oklahoma. Production there stands at about 85 MM cubic feet of equivalent per day. Of this production, 80% is natural gas and 20% is composed of natural gas liquids. Total reserves are estimated to be approximately 700 billion cubic feet of equivalent, 80% of which is natural gas.
ExxonMobil is targeting liquids for its higher-margin potential. For instance, the company's upstream segment grew earnings 45% to $1.2 billion, thanks in large part to this planned mix effect. Natural gas production actually fell 9% in the quarter.
This deal is a good one for ExxonMobil because it provides steady, long-term production capabilities. It will take a while to ramp up a drilling program in the newly acquired Midland acreage, but the sizable production potential is very attractive over the long term.
Nearer term, ExxonMobil has a number of projects coming online, which should provide a boost to current production.
ExxonMobil has several aces up its sleeve
ExxonMobil expects to bring 10 major upstream projects online this year. That would represent a record for the company, and those projects have a combined capacity of approximately 300,000 barrels of oil equivalent per day. That represents 7% growth from the 4.1 million barrels of oil-equivalent production per day in the first quarter.
Of these, the Kearl project is one of the most important. Kearl is a huge undertaking in the Canadian oil sands. ExxonMobil announced it had officially begun production at the Kearl oil sands project one year ago. The initial phase calls for production of 160,000 barrels per day. This represents 21% growth from the 757,000 barrels per day of liquids production received from North America and South America last quarter.
By next year, the company believes production capacity will double from initial levels. Over the long term, Kearl holds amazing potential. Production is expected to total 4.6 billion barrels over a 40-year time frame.
Final Foolish thoughts
A simple reality of the world we live in is that people need energy. That's particularly true in the emerging markets. So who better to fulfill this demand than the largest oil and gas producer in the world?
ExxonMobil has a stable business that produces high returns on capital like clockwork. The stock isn't expensive, pays a solid dividend, and has a number of growth initiatives set to ramp up over the next couple of years. This was likely the thesis behind Warren Buffett buying 40 million shares of ExxonMobil late last year. And he's already done well considering that his cost basis was around $90 per share. Clearly Buffett believes in ExxonMobil's long-term prospects, and for all the reasons mentioned above, you should too.
Bob Ciura has no position in any stocks mentioned. 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.