With the ever-present uncertainty of the fiscal cliff still haunting the United States, companies (excluding financial institutions) are sitting on a record $1.74 trillion in liquid assets. This collective rainy-day fund amounts to a whole lot of unrealized productivity in the face of economic headwinds, a lose-lose scenario for businesses. So, tired of sitting on their hands, some companies are putting on their fiscal-cliff blinders and moving ahead with huge investments planned for 2013.
The oil and gas industry is tremendously capital intensive, and the nature of the beast means multi-billion-dolllar capital expenditure plans from the supermajors. Last week, Chevron Corporation (NYSE:CVX) announced a $36.7 billion capital and exploratory budget for 2013. Nearly 25 percent, $8.9 billion, of that will be spent on on U.S. upstream and downstream operations, with the most notable developments in the deepwater Gulf of Mexico. International upstream investments, some $25.5 billion or nearly 70 percent of the budget, will be split between Nigeria, Kazakhstan, Angola, the Republic of Congo, and the massive Gorgon three-train LNG foundation in Australia.
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Also last week, ConocoPhillips (NYSE:COP) announced a 2013 capital budget of $15.8 billion. Approximately 60 percent of the budget has been allocated for North American projects, with drilling programs in the Gulf of Mexico and certain unconventional shale plays in the lower 48.
The Only Way to Grow is to Spend
Even with global economic growth floundering, uncertainty as thick as stew, and market participants on edge between recovery and collapse, oil and gas companies can’t afford to stop spending. Exxon Mobil (NYSE:XOM) indicates why that is in a recent energy industry forecast. Energy companies are one of the substrates that the global economy rests on — if the supermajors aren’t growing, every other industry on the planet is going to have a difficult time moving forward…
A tremendous increase in demand for energy is expected to be necessary in order to support the global economy as it gets back on its feet. Exxon Mobil predicts that global energy demand will be 35 percent higher in 2040 than it was in 2025, with oil and natural gas meeting about 60 percent of that demand. (If you don’t fuel it, it won’t go.)
Natural gas is quickly becoming the obvious rising star in energy, and is expected to overtake coal as the second-most-used fuel by 2025. Demand for the fuel is expected to grow 65 percent through 2040, with 20 percent of global production occurring in North America.
Rex Tillerson, chairman and CEO of Exxon Mobil, notes in a statement that “energy is fundamental to our way of life and essential to grow our economy.” The importance of energy in the global economy is self evident, but perhaps more interestingly is how the changing energy market will affect the U.S.
Exxon Mobil notes that North America is likely to become a net energy exporter by 2025. There is no hiding the fact that the U.S. is facing economic difficulties like never before and, barring a miracle, the road to recovery will be long and difficult.
“Over the next two decades, more than half of the growth in unconventional natural gas supply will be in North America, providing a strong foundation for increased economic growth across the United States, and most notably in industries such as energy, chemicals, steel and manufacturing,” the company notes in its statement.
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