Exxon Mobil Steps Up With Debt Offering and New Investments
On Monday, U.S. oil and gas supermajor Exxon Mobil (NYSE:XOM) revealed a $5.5 billion bond offering, breaking a 20-year debt market dry spell. The offer is broken into two floating rate notes due 2017 (at three-month LIBOR plus 0.04 percent) and 2019 (at three-month LIBOR plus 0.15 percent), as well as three fixed-rate notes due 2017 (at 0.921 percent), 2019 (at 1.819 percent), and 2024 (at 3.176 percent).
The offering does little to disturb Exxon Mobil’s relatively healthy debt situation. The bonds to the company’s existing debt pool of $22.7 billion gave Exxon Mobil a debt-to-equity ratio of 12.58 last quarter. This is below its major U.S. competitor Chevron (NYSE:CVX) at 13.58 and well below the beleaguered BP (NYSE:BP) at 36.96. Exxon Mobil carries an AAA rating from both Moody’s and Standard & Poor’s.
After deducting underwriting discounts and commissions – HSBC (NYSE:HSBC), JPMorgan Chase (NYSE:JPM), and Morgan Stanley (NYSE:MS) took point on the deal, along with more than a dozen other financial institutions — Exxon Mobil expects to net $5.486 billion in proceeds from the sale. The company provided boiler-plate language about usage, saying that it intends “to use the net proceeds from the sale of the Notes for general corporate purposes, including, but not limited to, funding for working capital, acquisitions, capital expenditures, refinancing a portion of our existing commercial paper borrowings and other business opportunities.” The company added that as of February 28, its commercial paper had an average interest rate of 0.07 percent.
That Exxon Mobil is tapping the debt market now could be a product of its aggressive spending over the past few years and its plan to continue spending relatively aggressively in the coming years. The company reported record capital expenditures of $42.5 billion in 2013 and is looking to launch production at a record 10 major projects this year, adding 300,000 barrels of oil equivalent per day of net capacity to its portfolio. Moving forward, Exxon Mobil anticipates capital expenditures of less than $37 billion per year from 2015 to 2017.
This money won’t all be spent in the United States. According to a report in the Vietnamese newspaper Thanh Nien, Exxon Mobil is investing $20 billion in a gas-fired power complex. Exxon Mobil will be partnering with state-owned oil and gas company PetroVietnam on the project. The project could mark the beginning of a more general and serious commitment to the region. Exxon Mobil is relatively conservative with its major investments, suggesting that the company sees a strong long-term energy market for Vietnam.
The investment could help offset a wave of somewhat weak production that has hit much of the energy industry. Exxon Mobil reported a 1.8 percent year-over-year decline in fourth-quarter oil equivalent production. Production declines were led by declines in entitlement volumes, but even excluding this, impact production was flat. Natural gas production fell by 654 million cubic feet per day (mcfd) to 11,887 mcfd. Excluding impacts from entitlement volumes, natural gas production volume fell 3.9 percent, “as field decline was partially offset by project ramp-up and increased demand.”
Exxon Mobil reported fourth-quarter upstream earnings of $6.79 billion, down about 12.6 percent on the year. Full-year upstream earnings of $26.84 billion were down about 10.2 percent on the year. This news sparked concerns about Exxon Mobil’s trajectory over the next few years: Does the company have enough high-quality projects coming online to profitably turn production growth around?
Between Vietnam and the 10 projects Exxon Mobil is launching production at this year, the company has made its argument — and it’s convinced people from analysts at Goldman Sachs, who slapped a Buy rating on Exxon Mobil in December, to Warren Buffett, chairman and CEO of Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB), who purchased $3.45 billion worth of Exxon Mobil stock in November.
Chevron has attracted some positive attention over the past few months, but it’s also given some bad news to investors. In December, the company reported delays with a large gas project in China, and in January it provided an earnings update that failed to inspire much optimism. Upstream data showed lower net oil-equivalent production in both the U.S. and overseas facilities. International upstream data showed weaker net production and realization numbers for natural gas, while liquid held mostly steady. Whole downstream earnings showed higher input at U.S. facilities. Chevron’s downstream earnings showed signs of promise, especially with respect to U.S. refinery input.