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Could the Plunge in Oil Prices Benefit Exxon?

3 February, 2015 by Ben O'Brien in Commentary

For the last few year’s the multinational oil and gas giant Exxon’s inability to capitalize on the shale drilling boom looked like a boneheaded failure. The company was going to every corner of the world, the Arctic and the bottom of the sea to find oil, while largely missing out on the boom going on right in the backyard of its Houston headquarters. Now, however, after the price of oil dropped more than 60% and many over-indebted shale drillers are in trouble, Exxon may have the last laugh. Despite the plunge in oil prices the company’s shares are roughly where they were a year ago, and the company now has a golden opportunity to buy struggling competitors on the cheap.

An article in Bloomberg highlights the opportunity for Exxon:

Exxon is sitting on nearly $5 billion in cash and equivalents, and while there aren’t many holes in the company’s portfolio, there is room to upgrade. The company could try to expand its footprint in the deepwater Gulf of Mexico or take a bigger position in the liquified natural gas market. But perhaps the most obvious place is the area that’s driven so much of the change in the global oil sector: U.S. shale. One of the knocks on Exxon, as on most other major oil companies, is that it missed the fracking boom in the U.S. when it pulled investments in the late 1990s and focused on Arctic and deep-water plays. But as oil prices have crashed, that decision is looking smarter by the day and gives Exxon a great chance to get into the fracking game on the cheap. The U.S. oil patch is littered with struggling companies: Many of the small and midsize independent wildcatters that drove the shale boom, helping boost U.S. oil production to its highest levels since the early 1980s, are now drowning in debt and low on cash. “This is an excellent time for Exxon to swoop down on some of these smaller shale players,” said Steven Kopits, president of Princeton Energy Advisors.