U.S. energy behemoth
) will have to bear the brunt of project cost escalation of more
than 20% for its huge gas project in Papua New Guinea (PNG). The
estimated cost of the project was $15.7 billion, which will now
increase significantly to $19.0 billion.
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Unfavorable foreign exchange rates contributed $1.4 billion to
the cost increase, while land access issues and work stoppage
added another $1.2 billion. Undesirable weather conditions also
escalated costs by $0.7 billion.
One of the Australian partners in the project, Oil Search, stated
that the increase in capital costs would be funded 70% by debt
and 30% by equity contributions as disclosed in the terms of the
project. However, despite the cost escalation issues, the PNG
venture remains on track to start-up and deliver first gas in
The PNG project is an integrated development that includes gas
production and processing facilities, onshore and offshore
pipelines and LNG plant facilities with a capacity of 6.6 million
tons per year. Despite cost increases, it is expected that the
capacity of the plant will increase 5% to 6.9 million tones per
It is anticipated that the project will enhance the nation's GDP
Irving, Texas-based ExxonMobil Corporation is the world's largest
publicly traded oil company, engaged in oil and natural gas
exploration and production, petroleum products refining and
marketing, chemicals manufacture, and other energy-related
businesses. The company divides its operations into three
segments: Upstream, Downstream, and Chemicals.
ExxonMobil's strength lies in its balanced operations, strong
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unconventional resource portfolio both in North America and
overseas is aimed at increasing production through increased
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However, access to new energy resources has become increasingly
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headwinds to replace its reserves. Given its large base,
achieving growth in oil and natural gas production has been a
challenge for the company over the last several years.
ExxonMobil, the largest natural gas producer in the U.S., ahead
Chesapeake Energy Corporation
), carries a Zacks #3 Rank, which is equivalent to a Hold rating
for a period of one to three months. Longer term, we maintain our
Neutral recommendation on the stock.