Exxon Ramps West Qurna Activity

Zacks Investment Research
updated | Zacks.com

ExxonMobil Corp.
(NYSE:XOM) and Royal Dutch Shell plc (RDS.A) intend to double or treble the number of new wells in Iraq’s West Qurna Phase One to fulfill their production target. The oil field has approximately 370 wells at present and a handful of the proposed wells are expected to come online by the end of this year.
 
In late January 2010, ExxonMobil and Shell finalized a deal to develop the West Qurna Phase One oil field in southern Iraq. Under the terms of the 20-year contract, ExxonMobil holds an 80% stake and Shell holds the remaining 20%. The Exxon group would not share oil production, but only be paid a fee of $1.9 for each extra barrel of oil that it extracts on top of current production at the field.
 
Located in the south of Iraq near the city of Basra, the West Qurna oil field has estimated reserves of 8.7 billion barrels. Exxon aims to boost the production level to 2.325 million barrels a day from the current daily production of 200,000 to 250,000 barrels, which is significantly down from a peak of 400,000 barrels reached in 2004. In July, Exxon also highlighted that the consortium intends to increase production by 10% by the end of first quarter 2011.
 
Among the international companies, Exxon is leading in the water injection project, which was mainly aimed to lift extraction rates in Iraq’s southern oilfields namely West Qurna, Majnoon, Zubair, Rumaila, Gharaf and Halfaya.
 
In order to explore and develop untapped oil fields, Iraq had signed several contracts with international oil companies. The Exxon-Shell deal is a part of this endeavor. Moreover, upon successful completion of the contract, Iraq could increase its capacity to the Saudi Arabian level of 12 million barrels a day. This would bring Iraq the much needed cash for renovation after decades of war, sanctions and ignorance.
 
ExxonMobil owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. With XTO Energy now on ExxonMobil’s board, the growth outlook of the oil giant is more promising on the back of solid access to unconventional resources. However, since access to new energy resources is becoming increasingly difficult, ExxonMobil, like most of its peers, is facing headwinds in replacing its reserve.
 
With the expectation that the stock will perform in line with the broader equity market, we have a Zacks #3 Rank (short-term ‘Hold’ recommendation) and maintain a long-term Neutral recommendation on Exxon shares.

 
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