Exxon Mobil sets $5 bln spending boost Capex to average $30 bln a year by 2009 By Steve Gelsi, MarketWatch Last update: 3:27 p.m. EST March 5, 2008 PrintPrint EmailE-mail Subscribe to RSSRSS DisableDisable Live Quotes NEW YORK (MarketWatch) -- While Exxon Mobil sees plenty of fossil fuel in the ground, it disclosed Wednesday that it'll need to spend about $5 billion more in 2008 just to keep production volumes flowing close to current levels as world energy demand continues to rise. The moves suggest that even the world's largest integrated oil company is challenged by higher costs tied to building rigs, drilling, refining and transporting fuel to the marketplace. All told, Exxon Mobil said it'll spend a record $25 billion in capital expenditures in 2008, up 25% from $20 billion in 2007. Meeting with analysts at the New York Stock Exchange, Exxon laid out its pet development projects, reiterated tough talk in its ongoing dispute with Venezuela, and said capital spending will average about $30 billion a year from 2009 to 2012. Exxon said it will launch about a dozen major development projects this year, including two liquid natural gas terminals, one in Italy and the other in the U.K. At the same time, liquid volume production will dip slightly in 2008 from 2007 levels of about 4.2 million of equivalent barrels of oil a day, according to projections from the oil giant. "Volume will continue to be a challenge for us, when you're working off a base as large as ours," said CEO Rex Tillerson. A rush toward energy independence and more trade barriers are posing difficulties around the world, he said. Turning to the company's expropriation battle with Venezuela, Tillerson said the oil giant routinely re-negotiates production sharing agreements with host countries. But Venezuela tossed Exxon's contract aside and demanded new terms, he said. After that, Tillerson said he didn't know if any contract agreement with Venezuela would be honored in the future. "The issue comes down to a pure and simple contract," he said. "The contract was disregarded and we're going through steps to correct that." Last month, Exxon Mobil moved to freeze $12 billion in Venezuelan assets as compensation for the contract as an early round in an international court battle that could rage for years. See full story. Mark Albers, senior vice president in charge of upstream production, said the company is "well positioned" to grow its reserves over the next five to 10 years - at least. "We've got a very deep inventory of projects to work on," he said. While total volume production in North America will decline by 2012, production increases are projected in Africa, Asia, the Middle East, Russia and the Caspian. CEO Tillerson said the increase in spending is tied to the rising prices of steel, labor and other commodities used in oil and gas exploration and refining. "The investment increase is reflected in the persistent high costs for project execution," he said. Exxon also faces higher costs if projects that it doesn't directly control run into execution challenges, he said. The company's spending needs are set before it decides to buy back stock or boost dividends. "They're unrelated questions," he said. "We don't sit around and ask if we should drill a well or buy back stock." Exxon said it'll be leaning on the growing market for liquid natural gas as oil gets tougher to extract. It's also well on its way toward a funding decision later this year or early next year on a major Kearl oil sands project in Canada, and it's planning the major start-up of a natural gas project in the Piceance Basin in Colorado. While Exxon Mobil faces higher costs, it repeatedly said it fares better than its competition in execution, economies of scale, execution and expertise. End of Story Steve Gelsi is a reporter for MarketWatch in New York.
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