Exxon Unable To Encash Shale Oil In USA

Exxon Mobil (XOM) is a leader in the oil and refinery business. It has recorded growth in production recently but the weakness in the refining market has hurt profits. The margins in the refining business may remain pressured as we see a surge in American oil production, which has driven oil prices to four-month lows of late. This will also influence the price of refined products like gasoline and diesel.

Domestic shale oil & gas revolution

U.S. oil production was declining for the past four decades. But it has spiked over the last few years and this is primarily as result of shale oil and new drilling techniques. As per the U.S Energy Information Administration, 29% of U.S. oil production is from shale oil.

The U.S. has been witnessing a boom in shale oil and gas. Despite this boom, major companies like Exxon and Chevron could not reap associated benefits. Smaller companies like Continental Resources, Pioneer Natural Resources, and Apache are taking more advantage of the boom in shale oil drilling as compared to larger companies like Chevron, Exxon and Shell. Pioneer has appreciated 70% this year while Continental has gained 50%. In comparison, Exxon & Chevron have underperformed.

A look at Exxon

Exxon recently reported its third-quarter earnings, which weren't quite impressive. Despite increased production, Exxon's profits slid 18% from last year and revenue slumped 2% to $112.37 billion.

Exxon has been incurring huge expenditures on shale oil projects and has spent over $52 billion in the past three years. The major part of this expense was involved in the year 2012, when gas prices slumped to 10-year lows. Exxon is confident of increasing its output by 74% from the start of the year to over 60,000 barrels a day in the Bakken formation, but weak pricing could undo this increase.

Exxon is focused on its overseas projects in Canada, Australia, and Russia, with some of its projects based in the Caspian Sea. Exxon is also targeting various shale oil projects in China, which could be undertaken as joint ventures with various Chinese oil companies. The only barrier to shale oil projects in China could be the lack of infrastructure support in China as compared to facilities in the U.S.

Exxon also sees huge potential in Siberia. To exploit this opportunity, it has tied up with Rosneft to jointly explore all the possibilities of Shale oil potential in the western Siberia region. Exxon anticipates that it may take around a year to explore all the possibilities and viability's of the shale oil deposits in this area. Exxon has also tied up with Rosneft for shale oil exploration in some areas of Canada and Texas. This tie up with Rosneft can help Exxon increase production further in the future.