ExxonMobil came out this week with a bold announcement -- it would set aside $185 billion for new sources of oil/natural gas global exploration. What's in it for ExxonMobil? And more importantly, what's in it for the company's investors?

The move comes from the top brass at ExxonMobil, likely in recognition of just how difficult it’s getting to find new sources of fossil fuels.

Let’s face facts. Any slowdown in oil and gas exploration threatens the bottom lines of big oil companies like ExxonMobil, and would hurt the company’s stock price, too.

Investors, being an anxious lot in the first place, are aware of the earth’s dwindling natural resources, at least the “low hanging fruit” variety, and need pacification and assurance that things are going to be okay--and that ExxonMobil’s share price will keep going up (it’s trading at about $85 per share in mid-March).

Thus the move from ExxonMobil’s directors to tout an ambitious, five-year $185-billion spending plan--almost a 30% boost in the oil giant’s most recent five-year funding plan--to meet global energy demand, and to give investors a good reason to believe that ExxonMobil’s stock will continue to outperform over the next few years.

In general, ExxonMobil has traded within a $70-$90 band since 2007, with a six-month outlier in mid 2010, when the company’s stock fell to $50 in July 2010, before skyrocketing to almost $90-per-share a year later.

ExxonMobil’s inside estimates support the $185 billion in funding -- it expects global energy demand for fossil fuels to rise by 30% over the next 30 years. But finding new sources of hydrocarbons is getting tougher by the year. And ExxonMobil knows it.

“During challenging times for the global economy, ExxonMobil continues to invest to deliver the energy needed to underpin economic recovery and growth,” said Exxon Chairman and CEO Rex W. Tillerson in a March 8 meeting with Wall Street analysts.

He told analysts that natural gas represents the greatest growth opportunity for the company, as ExxonMobil expects the energy resource to meet 60% of worldwide energy needs by 2040. Tillerson said ExxonMobil is ahead of the curve there, with plans to pour $37 billion annually into both oil and gas exploration through 2016.

Altogether, ExxonMobil expects to kick-start 21 “major oil and gas projects between 2012 and 2014. Tillerson provided analysts with some specifics:

  • ExxonMobil replaced 107% of its 2011 production (116% excluding asset sales), increasing proved reserves to 24.9 billion oil equivalent barrels. It was the 18th consecutive year the company replaced more than 100% of its production, with proved reserve additions of 1.8 billion oil-equivalent barrels.
  • Nine major upstream projects are expected to start-up in the next two years including four in West Africa, Kashagan Phase 1 in Kazakhstan and the Kearl Oil Sands project in Canada.
  • In the downstream, the company completed a large project at the Thailand refinery, which is expected to increase the supply of lower sulfur motor fuels by more than 50 thousand barrels per day. Additional projects are under way, including new facilities at ExxonMobil’s Singapore refinery and at a joint-venture refinery in Saudi Arabia.

In addition, ExxonMobil announced a significant expansion at it's Singapore petrochemicals facility that should add 2.6 million tons of additional capacity annually, which ExxonMobil sees as a critical upgrade to meet higher demand growth along the Pacific Rim.

Analysts may have liked what they heard from Tillerson, although investors were largely indifferent as the company’s stock barely budged an inch over a five-day trading period following the March 8th announcement (moving between $83 and $85 per share).

But analysts still like ExxonMobil, with the mean stock price estimate from 19 brokers surveyed by Thompson/First Call at $92.11; the mean target at $93 per share; and the high target price at $104 per share.

The rest of the ExxonMobil story seems sketchy. There really isn’t any early March upgrade/downgrade activity from analysts on ExxonMobil, but the February trends were largely negative, with Argus, Howard Weil, and Standpoint Research all downgrading XOM in January and February.

Another fly in the ointment that may be holding investor enthusiasm for XOM at bay is ExxonMobil’s 3% estimated decline in production for 2012, a trend that has ExxonMobil stock underperforming against other large oil and gas stocks so far in 2012.

------------------------------------------------------------------------------------------------------

Company Year-to-Date Stock Performance*

Exxon 0%

Chevron 3%

Petrobas 15%

BP 10%

Total 10%

ConocoPhillips 6%

Occidental 8%

Petrochina 18%

*As of March 8, 2012

Source: Thomson Baseline

-------------------------------------------------------------------------------------------------------

Analysts at Simmons & Co. offer a good news/bad news scenario on ExxonMobil, noting that a larger dividend yield may be in the pipeline, and that the firm has divested over $25 billion in assets since 2007.

But on the downside, there’s that 3% slide in production outlook for 2012 (after a 1% uptick in production in 2011), three straight indifferent upstream earnings reports, and a risk exposure to low natural gas prices that is outside the comfort zone of Simmons’ analysts.

The takeaway for ExxonMobil investors may only be marginally positive. Obviously, it’s growing more expensive for big oil firms to dig up hydrocarbon resources just to keep up with recent and current levels of production.

That’s a problem for Wall Streeters, who don’t want to see their portfolio stalwarts running in place, a fact that Tillerson at least nods at, even if he won’t publicly agree with. The cost of production is “clearly going up” with "the size, the magnitude and the conditions with which we're making some of these investments."

That sounds a lot like “uphill climb” talk to investors, but ExxonMobil’s got to do what the company has got to do -- even if it means spending $185 billion just to keep up with the Joneses.