I often like to poke fun at the supermajors, the huge Western oil companies that always seem to show up late to the party.
When they do arrive, it’s only after shelling out billions for a piece of the pie.
And is it really fair to even call some of them “oil companies”?
You might not think so when you consider that ExxonMobil is the largest publicly-traded natural gas company. In fact, more than half of XOM’s production mix in 2011 was weighted towards natural gas, boosted by its $41 billion buyout of XTO during the previous year.
Perhaps there’s an ulterior motive here, a specific reason they’re becoming more gas-friendly?
We’d be naive to think Big Oil isn’t harboring a few secrets…
Now, I’m not referring to the most obvious switch they’ve made over the last few decades. You may have noticed by now that these major oil companies tout their reserves in terms of barrels of oil equivalent.
With crude oil prices now trading close to triple-digits after the run-up to $147 per barrel in the summer of 2008, production should be higher than ever.
But sadly, that’s far from the reality. Oil production from each of the supermajors has declined over the last decade:
Just for a moment, let’s give them the benefit of the doubt. Let’s assume this production shift towards natural gas is a cool, calculated move on their part.
Because truthfully, I think there’s another reason behind Exxon’s newfound love for all things natural gas…
We could probably talk through the weekend about natural gas gaining the edge over coal in the electrical generation.
In the last two decades, this race hasn’t even been close — with over three-quarters of all generating capacity additions coming from plants fueled by natural gas.
That isn’t a subtle and smooth transition, my friends. It’s a hostile takeover of the power sector.
And these huge companies are making even bigger bets on sending our natural gas abroad.
Some of them are making moves as we speak…
Bigger than Big Oil
Despite the “orphan and widow” stigma attached to major oil companies like ExxonMobil and friends, nobody wants to wait around fifty or more years while these companies make a mad dash away from oil.
And their performance as of late doesn’t inspire much confidence for individual investors like us:
As you can see above, only one of the supermajors has returned a profit over the last five years.
It should be noted that Chevron’s success going forward is also closely tied to natural gas. (You might recall recently that Chevron bought a 50% stake in the Kitimat LNG project in Canada.)
ExxonMobil, on the other hand, is dipping its hand in the lower 48 states. The company announced this morning it signed a $10 billion deal with Qatar Petroleum International to build a natural gas plant in Texas. Together the two created Golden Pass Products LLC, a subsidiary in charge of operating the natural gas export terminal in Sabine Pass.
It should be painfully obvious by now that these major oil companies are positioning themselves for what the EIA has dubbed “The Golden Age of Natural Gas.”
Whether they’ve lost their bullish sentiment on crude, oil or are smarter than we give them credit for… staking a huge claim in the long-term future of natural gas right now is the best move a company can make.
And all you have to do is to ride this profit wave is invest one step ahead of them.
The prosperity of these North American LNG export projects hinges on one huge factor: production.
Up until now, that hasn’t been much of a problem:
But should you really be satisfied with the lackluster gains the supermajors have made since our shale revolution was kick-started in 2008?
Should we stick with the supermajors as they spend billions to stay on top?
The answer is a resounding NO!
Unfortunately, ExxonMobil isn’t trading for the $0.22 that it was exactly 43 years ago. That ship has sailed and sunk, and we’ll be glad to leave them to the orphans and widows.
Until next time,
A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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