With commodity prices sliding and oil and gas stocks reeling, the giant of all oil companies, ExxonMobil Corp. , has been puffing out its corporate chest. CEO Rex Tillerson claimed on CNBC Dec. 3 that the company can weather the downturn, having figured prices as low as $40 into its planning and projections. "What you do is ensure that you can be successful at the bottom of the price swing," he said. That may be the case. But Exxon Mobil and its brethren may not be as insulated from lower oil prices as in years past. The integrated oil companies haven't had the best operational performance over the last few years, according to a report out Tuesday by Tudor, Pickering, Holt & Co. Securities Inc. They have generally disappointed expectations for oil and gas production and tended to be late — and over budget — on development projects, wrote Tudor's Anish Kapadia. Costs have also risen, exploration performance has been weak and downstream earnings have remained at depressed levels. "We see little to differentiate between the super-majors as no-growth yield plays," Kapadia said, noting BG Group plc as an exemption given its liquefied natural gas model. What's wrong with the integrated oil companies? Kapadia lists a number of problems. First off, they're just too big: There is little in the way of savings on overhead from a large portfolio and it tends to cause a lack of focus. They're also not the only game in town: State oil companies — including the Chinese — and privately funded upstarts have stepped in to finance developments and make large acquisitions, with Kapadia citing RWE AG's sale of its oil and gas business to LetterOne Holding SA — which is backed by a pair of Russian billionaires — for $5.8 billion. There's also little value in integration, Kapadia contends. The old argument that the downstream is resilient when the upstream is weak and vice versa hasn't necessarily proved to be the case over the last decade, as most of the integrated oil companies' refineries don't use their own crude. "The value in disintegration has been highlighted by the value creation from the moves made by the likes of Conoco , Marathon and Hess to hive off the downstream and the ensuing share price performance," Kapadia explained. Kapadia anticipates that the 14 integrated oil companies the firm tracks will cut capex more than originally expected this year by $33 billion to $260 billion, or around 10% over last year, virtually all from the upstream side of the business. For example, he expects Statoil ASA to slash its capex by 20% and Petróleo Brasileiro SA by 18%, while Royal Dutch Shell plc will shrink its levels by 6% and Exxon Mobil by 3%. ConocoPhillips already announced it would cut its expenditures by about 20%. Still, like the rest of the industry in this age of lower oil prices, Exxon Mobil is working to bring down costs, watching its cash and investment decisions carefully and being "disciplined about everything," Tillerson told CNBC. "It looks more like the 1990s than the '80s for us," another Exxon Mobil executive said recently. If that's the case, then make way for more deals. When prices dropped to around $20 per barrel in the late 1990s, the strongest companies used the opportunity to pick up valuable assets on the cheap and gain economics of scale. Exxon and Mobil combined in 1998, BP plc picked up Amoco and Arco in 1998 and 1998, Total SA added Petrofina and Elf Aquitane in 1999 and 2000 and Chevron Corp. bought Texaco in 2000. But this time will be a bit different. Buying other large companies isn't going to help the large integrated oil companies wring out more costs, so they will probably continue to sell non-core assets as well as acquire larger independents or assets that fit with their portfolio, technology or geographic plays. Tillerson admitted as much to CNBC, saying the company will be looking for such opportunities. "There's been a lot of people entering this space. Some are good. Some are not as good," he said. "There will be some sorting out of that." Maybe among the integrated companies as well. Read more from:
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