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.
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
financial flexibility and continuous improvement on efficiency
and cost control. The company's efforts to build an
unconventional resource portfolio both in North America and
overseas is aimed at increasing production through increased
exposure to large energy resources with long reserve life and low
However, access to new energy resources has become increasingly
difficult. ExxonMobil, like most of its peers, will likely face
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.
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