This Company Is Bullish in the Bowland Shale Gas Project Race
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ExxonMobil (NYSE: XOM) has begun talks to purchase a stake in the Bowland shale gas project in northwest England. The Sunday Times confirmed that ExxonMobil is seriously considering purchasing the IGas owned Bowland shale project. Analysts believe that Exxon's talks could lead to an IGas' takeover, currently valued at $202 million. Royal Dutch Shell (NYSE: RDS-A), Total (NYSE: TOT) and Statoil are also considering bidding on the project as well. Purchasing the Bowland shale gas project will increase Exxon Mobil's long-term profitability and will lead to a significant increase in revenues.
The Bowland shale project is estimated to hold 200 billion cubic feet of gas. The astounding amount is equivalent to 70 years of supply, which will multiply Exxon Mobil’s earnings for many more decades. Exxon has another advantage too, as the British government recently lifted an 18 month ban on fracking. When Caudrilla Resources drilled at the location, small tremors were registered in Northwest England. Considering the infrastructure that Exxon possesses, fracking in the Bowland shale project will be risk free.
Why Bowland Shale Project Will Increase Exxon’s Long Term Profitability
Let's discuss two important factors that make this is amazing boost to investors’ confidence. First, shale gas has helped to slash energy prices and has created a lot of revenue within the U.S. Shale gas provides alternative sources of energy as most of us are still dependent on offshore drilling. ExxonMobil has potentially landed a project that could not only offset demand for natural gas, but also ensure that there is a continuous supply of gas for the next seven decades.
Second, England is one of the most stable countries to do business in. Exxon's employees will not be subjected to risky political and military situations, as evidenced in the Middle East or certain Latin American countries. England also has one of the most favorable business environments for American companies. Thus, purchasing a stake at the Bowland shale project will ensure ExxonMobil that its revenue and profits will increase significantly over the next few decades.
What Is the Value of Bowland’s Shale Gas Reserves?
200 billion cubic feet of gas is a huge amount of shale gas, and one thousand cubic feet (mcf) of natural gas costs $3 at current rates. Thus, 200 billion cubic feet of gas is valued at at least $6 billion. Demand for energy resources will only increase in the coming years as there will be reduced supplies. The value of Bowland shale project will increase exponentially in the coming years and thereby will ensure ExxonMobil a steady source of income for many decades.
France's Total has been eyeing the Bowland project for quite some time. The company had expressed its interest in purchasing the Bowland shale project way back in May 2012, when IGas had initially expressed its desire to sell its stake. Total operates at Lincolnshire, in close vicinity of the Bowland shale project. If Exxon wins the race to purchase the Bowland shale project, Total will be disappointed. Another competitor that has expressed its keen interest in the Bowland shale project is Dutch oil company Shell. Shell provides commercial fuel across the U.K., and purchasing a stake in IGas would be very desirable for Shell's investors because of increased profitability and consolidation of business in the U.K. However, Exxon is leading the race to purchase the Bowland shale gas project.
Chevron (NYSE: CVX), on the other hand, has agreed to pay $150 million and effectively settle two major environmental lawsuits in Brazil. In order to offset the effects of problems in Brazil, the company recently announced that it would spend almost 90% of its capital budget of $37 billion in exploration and drilling projects across the U.S., Australia, West Africa and Kazakhstan. Meanwhile, Exxon's other rival, British Petroleum (BP), decided to sell its 50% stake in the Sean gas field to SSE (formerly, Scottish and Southern Energy) for $288 million. The Sean gas field is operated by Shell, and BP decided to sell its stake as part of a plan to divest non-operated assets.
Soon after Exxon's announcement was made, its stock rose by 0.9%. Currently, it trades at $89 and has a price to book ratio of 2.43. With a gross margin of 22%, the company is one of the best oil stocks to invest in. It also has an astounding $54 billion operating cash flow and a total cash of $13 billion. Going forward, with its purchase of Bowland shale project and the assured gas supplies for 70 years, Exxon is the best long-term investment in oil and gas at the moment.
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