Exxon will spend spend about $100 million a day for the next five years on capital projects all in an effort to find and produce oil and gas. That spending fantastically large spending commitment -- which will range between $33 billion and $37 billion through 2015 -- marks an important shift for the typically conservative company. In short, Exxon is putting more of its money to work than it has in recent years.
It's not that Exxon's previous capital spending plans were ever tiny. Exxon spent $126 billion in the past five years on capital expenditures. And it's annual spending typically towers above other oil majors by billions. But considering how much cash Exxon has, they've been conservative. For example, Exxon generated $48.4 billion cash from operations last year, according to its annual report. It spent $26.9 billion on capital projects. Exxon took what a more aggressive company may have used on capital projects and spent billions buying back shares. At the end of the year Exxon still had $7.8 billion in cash.
This slight shift means Exxon a couple of things. For one, Exxon recognizes its competitors, especially smaller independents, have been far more aggressive and less risk-averse when it comes to exploring for oil. That has led to success for Exxon rivals, and more importantly growth in production. Exxon's more conservative approach meant its production growth was 3 percent to 4 percent this year.
Secondly, Exxon's projections for 2030 leave the company little choice but to up its spending. CEO Rex Tillerson, at the company's annual meeting Wednesday, said they anticipate growing prosperity to drive an increase in energy demand 35 percent by 2030.
To meet this demand we must have diverse supply of energy sources. This is not the time to slowdown investment activity or technological development.Much of that demand will be for power generation -- or electricity. There's a reason Exxon spent $31 billion to buy unconventional gas company XTO Energy last year. The company expects natural gas will be the fastest growing major energy source and will overtake coal by 2030.
The real story here is oil, which Exxon plans to put more of its effort and money into. Exxon expects global transportation demand -- meaning oil refined into gas -- will increase 40 percent in emerging economies.
Exxon has 11 major project start-ups, including its Canadian oil sands venture, planned between 2011 and 2013. Nearly 80 percent of the new production will be oil.
On a side note: Tillerson clearly understands the importance of energy efficiency because without it the global consumption would outpace supply. Exxon projects that energy saved through gains in efficiency will be about twice the expected growth in energy consumption.
Photo from Flickr user zzzack, CC 2.0; image from Exxon