ExxonMobil’s Multi-Billion Dollar Wager

Miami Beach, Florida

The biggest company in the world, as measured by stock market value, continues to make big acquisitions in the natural gas space. That’s a curious thing because everyone and his dog just loves to hate natural gas – one of the worst-performing commodities since 2009.
ExxonMobil (NYSE-XOM) has invested more than $30 billion in natural gas projects over the past 13 months, including a $31 billion dollars acquisition of XTO Energy in December 2009. Last month, the energy giant invested another $575 million dollars for Petrohawk’s gas assets.

The smart money at XOM says natural gas assets are cheap and poised to recover sharply over the long-term. I’ll bet on ExxonMobil.

The price of natural gas fell more than 25% last year and remains more than 75% below its all-time high recorded in 2005 as Hurricane Katrina slammed into the Gulf of Mexico.

Natural gas, however, has been hit hard over the last 18 months, mostly because of revolutionary technology called “fracking,” whereby drillers apply water and a host of chemicals in shale rock to strip gas minerals. The resulting exploration boom has drowned the market with supply and tipping natural gas prices into a severe bear market.

But ExxonMobil sees things differently. It has the financial muscle to ride-out the glut in prices. I’ll bet its current buying binge will be enormously profitable eventually because natural gas is indeed a viable fuel.

Also, the environmental impact of “fracking” is starting to gain momentum as water supplies are marginalized or, in some cases, destroyed, and communities petition against the extraction process.

Average rating
(0 votes)