XOM's Big Move
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- Published on Wednesday, 20 June 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
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Exxon is moving out of Poland. But don't trust the headlines. The move is about anything but Poland's supply of natural gas.
Once again, the world's biggest energy company swings at and misses a natural gas curveball. First, the oil beast was late to make the transition to dry gas and now it has failed in Poland.
Or has it?
After drilling two wells in Poland with lousy results, Exxon Mobil (XOM:NYSE) tossed its hands in the air this week and is abandoning the country at the heart of Europe's shale revolution.
The competition, though, is not about to budge. It's exactly what Exxon hoped would happen.
Chevron (CVX:NYSE), ConocoPhillips (COP:NYSE) and Marathon Oil (MRO:NYSE) are all drilling in Poland and each of them has reiterated its optimism for the unconventional play that stands to change the global struggle for energy.
The week's action highlights a grand opportunity.
If you've been playing along at home, you know I'm a huge fan of the natural gas industry. And you should also know the gas boom is not just an American phenomenon... it's global.
That's why I refused to take Exxon's announcement at face value. Something in its story did not add up. It's fishy.
Essentially, the company drilled two wells in central Poland, tested the flow and shook its head. The formation is not commercially viable, it told us.
It's hogwash.
Despite the mainstream appraisal of the situation, Exxon's move had very little to do with Poland's potential gas reserves. Almost everybody in the sector agrees Poland sits atop trillions of cubic feet of natural gas.
The problem is... the country's gas industry is in its infancy. Even after three years of drilling, nobody knows the right way (aka the profitable way) to tap all that energy. Even worse, nobody knows how the government will treat drillers.
In fact, that's the reason I am certain Exxon's move was more political than technical.
You see, Exxon's move had some interesting timing.
We've been sitting on the results of its two test wells since February. We've known about Exxon's lack of success for nearly six months.
So why then did the company wait so long to publicize its move out of the country? And why this week?
Well, it turns out Poland was set to make a big announcement of its own. Last Wednesday, the government made a last-minute move to cancel its plans to reveal how it would regulate and tax the gas-drilling industry.
In other words, just as the public was about to find out how much Poland would skim off the top of profits, how tightly it would deal with controversial environmental issues and what kind of hoops companies would have to jump through to get permits and licenses... Exxon got word of what was coming and it bailed.
It was Exxon's version of a slap to the face.
Treat us well, it said, or we're outta here.
Now Exxon is letting the competition waste its energy fighting tight regulations, high taxes and environmental hype.
And let's not forget, with Exxon out of the picture, these smaller players are forced to pick up the infrastructure tab as well. Unlike the United States and Canada, Poland does not have a rich history of energy production.
It's always been an importer. That means it doesn't have the pipelines or the services needed to support a big boost in drilling.
Poland's "newness" also means the drillers don't yet know the nuances of tapping the region's shale. Just because a technique works in Pennsylvania's dense shale doesn't mean it will work in Europe's mile-deep rock.
With all that in mind, Exxon's move had very little to do with the size of Poland's gas reserves. Even though the headlines beg to differ, Exxon did not strike out.
Instead, the oil giant got the information it wanted and now it is temporarily backing out, letting the competition do the heavy (and expensive) initial lifting.
Once the hard work is done and the expensive subtleties have been worked out... Exxon will be back in a big way. Mark my word.
This is what makes natural gas investing so lucrative. There are many, many variables and the market has made all sorts of mistakes.
In fact, because the natural gas industry is moving with such large strides, one of my recent gas sector plays was up 7% yesterday as the market works to find the long-term winners. So far in June... shares of the company are up by over 40%.
I'm especially excited because tomorrow I will show you how to get access to my latest recommendation. The company I've got my finger on this time is doing things with natural gas most analysts said were impossible just five years ago.
It's incredible.
And it is more proof the world's energy transformation is making a fool out of anybody who tries to make a buck using conventional techniques.
More on the story tomorrow...
From the Inside,
Aaron
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