Wednesday, February 1, 2012

Party On, Exxon

Exxon Mobil, always one to buck trends, stated today that unlike other natural gas producers it has not cut back on North American gas production in of late.

Investors and gas traders seem to be expecting all gas producers to announce curtailments and rig count reductions as a way towards higher gas prices.  A big fish like Exxon saying that its plans are unchanged sent commodity prices plummeting today.

But this shouldn't be surprising news.  First, domestic gas producers are not OPEC.  They cannot and will not agree on production levels.  If nearly everyone cuts back, it creates an opening for others - that's the free market, baby.  Second, nobody should confuse an independent like Chesapeake, Comstock or GMX with Exxon.  In many respects, that's like confusing a Boston Whaler with a battleship.  The independents are smart and scrappy but are always struggling with cash flow.  Exxon has its plan, a boatload of cash and a long-term horizon.  Third, it's hard to get excited about independents dropping shale gas rigs because they are diverting spending and rigs towards oil and liquids, which also produces dry gas as a byproduct.  Not quite as much gas, but it's enough to temper one's excitement about these recent announcements.

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