America’s most profitable company – Exxon Mobil – now produces about as much natural gas as it does oil. CEO Rex Tillerson thinks the fracking party has just begun.
(Source: CNN Money) — For Rex Tillerson fracking is more than a revolutionary approach to drilling oil and gas — it’s part of his personal history. Simply mention the word to the CEO of Exxon Mobil (XOM) and he starts reminiscing about his days as a young engineer. It was 1976, and Tillerson had been sent to East Texas for his second assignment at the company. His job was to follow around rigs drilling for natural gas and “complete” the wells. That meant experimenting with a process known as hydraulic fracturing, or fracking. By pumping water, sand, and chemicals down into a well at high pressure, he could cause cracks in the stone where the gas was trapped and allow more of it to flow.
That winter Tillerson practically lived out of the back of his car, driving to the company’s district office in Tyler at night so he could run punch-card decks through the computer to design his new fracking programs. Out in the field, when the temperature dropped and the wind blew, the then 24-year-old engineer was grateful for the shelter provided by the big diesel engines that powered the water pumps. “I would stand between those big fracking tanks to stay warm, because the water’s heated,” says Tillerson in a rare interview, laughing at the memory. “I’d stay there until they were ready to crank those babies up, and then I’d have to go out into the weather.”
What’s warming his heart today is the shale gas revolution that technology has enabled. In fact, Tillerson is betting much of his company’s future growth — and a good portion of his legacy — on the promise of fracking. Two years ago Tillerson engineered a $35 billion acquisition of natural-gas producer XTO Energy in large part to buy the company’s hydraulic-fracturing expertise. It is easily the largest deal the energy giant has done since the $88 billion mega-merger with Mobil orchestrated by Tillerson’s predecessor, Lee Raymond, in 1999.
In buying XTO, the 60-year-old Tillerson has further reshaped the company. In 2011, Exxon reported sales of $486 billion — a gargantuan number that could vault it past Wal-Mart (WMT) to recapture the No. 1 position in this year’s Fortune 500. The $41 billion in profit it earned was the second-largest total in corporate history, behind only the $45 billion record that Exxon set in 2008. Those astronomical earnings have been driven by persistently high oil prices. But today Exxon, the prototypical oil giant, gets about 50% of its production from, and has 50% of its reserves in, natural gas. The company’s stock has risen 77% since Tillerson became CEO at the beginning of 2006, compared with 29% for the S&P 500 index (SPX). To deliver the future returns that its shareholders expect, Exxon needs the XTO purchase — which so far hasn’t lived up to its promise because of falling natural-gas prices — to pay off bigtime. Tillerson has good reason to believe it will.
Over the past several years fracking has unlocked a vast new source of energy supply in the U.S. Advanced forms of the process that Tillerson used in the 1970s, combined with innovative methods of drilling, have enabled energy companies to extract huge quantities of natural gas and oil trapped in shale rock — assets that were previously thought to be either impossible or uneconomic to produce. Production from large shale deposits, or “plays,” such as the Barnett in Texas, the Haynesville in East Texas and Louisiana, and the vast Marcellus in the Northeast, has surged.
Read the full article: Exxon’s big bet on shale gas
