Exxon's Asset Disposal Program - Analyst Blog

According to a report by Sunday Times, oil major ExxonMobil Corporation (XOM) intends to dispose of its North Sea assets worth $2 billion, including its vast Beryl field, to focus more on other fast growing areas such as Brazil. The company declined to comment on the report, but confirmed that it plans to divest 100 petrol stations in Scotland.

Regarding the North Sea divestiture plan, Exxon's spokesman pointed out that the company intends to continue as a major investor in the North Sea region.

In recent years, major oil companies such as BP Plc (BP), Royal Dutch Shell (RDS.A), as well as Exxon are divesting their assets in the region, in order to focus on the areas such as Angola and the Gulf of Mexico (GoM). In September 2010, Exxon and Shell had planned to sell their interest in the Corvette field platform in the North Sea. Although the companies are not willing to completely remove their footprints from the area, the domain is expected to be occupied by smaller independent explorers.

Recently, Exxon and Hess Corp. (HES) started drilling the third well in an offshore Brazil Block, BM-S-22, situated in Santos Basin. Each of the companies hold a 40% interest, while Petroleo Brasileiro SA or Petrobras (PBR), Brazil's state-controlled oil company, owns the remainder. Hence, this is reflective of the companies' growing focus on Brazil.

In a separate release, Exxon announced that it has signed an agreement to sell certain shallow-water GoM oil and natural gas interests to an independent operator, Energy XXI (Bermuda) Limited (EXXI) for $1.01 billion.

The assets include nine fields on the Gulf of Mexico shelf, covering an area of 130,853 net acres, have a production capacity of 20,000 barrels of oil equivalent (Boe) per day, 53% of which is oil. The six largest fields account for 89% of the net production.

As per independent oil and gas consultants Netherland, Sewell & Associates, Inc.'s report, net proved and probable reserves of the assets were 66 million Boe, 61% of which is oil. Proved reserves were estimated at 30.1 million barrels of oil and 116.1 billion cubic feet of natural gas, or a total of 49.5 million Boe, 68% of which Energy XXI said were proved developed.

The growth outlook of Exxon is more upbeat on the back of solid access to unconventional resources as the entire business of XTO Energy is now on its board. However, as access to new energy resources is becoming more difficult, ExxonMobil, like most of its peers, is facing headwinds to replace its reserve. It remains to be seen how the companies will develop the Brazilian deepwater.

We are currently maintaining our long-term Neutral recommendation for the Exxon stock. The company holds a Zacks #3 Rank (short-term Hold rating).