Persistently low natural gas prices have prompted ExxonMobil to slash its Lower 48 rig count since January by 27% to 51 currently, a top company official said Thursday.
As other oil companies have done, ExxonMobil has raised its profile in oil and liquids-rich plays in the US. But as gas prices plummeted, ExxonMobil decreased its rig count in first-half 2012 from an earlier 70 rigs, David Rosenthal, vice president of investor relations, said during the company's quarterly earnings conference call.
"We've continued to reduce the absolute number of rigs we're running, which averaged about 57 across the second quarter," Rosenthal said. "The majority of those rigs are working on liquids and liquids-rich plays."
"That would be a continuation of the trend you've seen over the last few quarters," he added.
The move comes in response to gas prices that fell to the $2s/MMBtu on NYMEX this year and even dropped below $2 for brief periods. Gas prices on NYMEX are now around $3/MMBtu.
Rosenthal said ExxonMobil continues to drill in some dry gas areas that do not contain liquids as do some gas-prone areas.
The company in 2010 closed a $41 billion acquisition of XTO Energy, in a move that was largely seen as a long-term bet on the value of gas. The deal's close came at a time when the price of gas had begun to plummet due to an oversupply as operators turned up larger and larger volumes of the commodity in shale and other unconventional fields.
But Rosenthal's remarks suggested ExxonMobil has not changed its mind on the value of the XTO purchase.
"Over the long term we want to be in a position to maximize recovery and value generation from those plays," he said.
He official emphasized that ExxonMobil does not have a "price trigger" above which it would begin to return rigs to dry gas drilling.
"We may do something at the margin, but when you look at the overall plan and strategy, it continues to be with a very long-term view of this very high quality project."
Meanwhile, Rosenthal said the company is tackling a development plan for its Julia find in a frontier part of the Gulf of Mexico. Last August, the company and 50% partner Statoil sued the US Interior Department, claiming regulators had wrongly denied extensions of 10-year leases in the ultra-deepwater Walker Ridge area of the gulf where the find was made in 2007.
Interior claimed ExxonMobil had not shown a firm commitment to develop the fields.
ExxonMobil and Statoil earlier this year resolved the issue after agreeing to pay additional royalties and fees and begin production by 2016. The companies also said they would pay the US a "production incentive fee" of $11.2 million/year until output at the three original Julia leases reached 87.5 million barrels. The companies also agreed to an 18.75% royalty rate rather than the original 12.5% and agreed to boost rent on the leases to $11/acre from their original $7.50/acre.
Currently, "we're... progressing a technical validation program" on Julia, said Rosenthal. "In the second quarter we did place some [orders] on long-lead equipment items."
ExxonMobil said its second-quarter net income rose to $15.9 billion, or $3.41/share, up 49% from $10.7 billion or $2.19/share reported in the same period of 2011.
The company said its latest results included a $7.5 billion net gain associated with divestments and tax-related items; excluding these gains, quarterly earnings would have been $8.4 billion, the company said.
