. Last Updated: 07/27/2016

Mobil Goes on Deal Spree

WASHINGTON -- Mobil Corp. of Fairfax, Virginia, once considered slow and conservative, this spring has been announcing multibillion-dollar deals around the globe at an astonishing pace.


The deals -- including a $1.4 billion takeover bid for Australian exploration firm Ampolex, as well as billion-dollar commitments to invest in Kazakhstan and Peru -- are primarily designed to bolster Mobil's oil and gas reserves.


Many industry analysts applaud the moves, but some experts worry that Mobil may be paying too much for its new ventures, still faces tough competition around the globe and may not realize long-term profits from some of the deals.


"Short-term, Mobil is very strong, and they're trying to lash the horses and make things happen quickly," said Robin West, president of Petroleum Finance Co. "This is admirable, but at a minimum they're making very big commitments. If everything doesn't work out, they've got problems."


Steven Comstock, vice president for planning in Mobil's exploration and production division, said the ventures may be less risky than they appear, particularly in an industry where risk is inherent. In two of the deals, Mobil has powerful partners -- Chevron Corp. in Kazakhstan and Royal Dutch/Shell Group in Peru -- which can help shoulder some of the financial risk.


Mobil executives said the timing of the string of recent deals is largely a result of taking advantage of opportunities that opened up in geographic areas that they had targeted for long-term growth. Comstock said the company began investigating and negotiating agreements in some of these new frontier areas five to seven years ago. Mobil is engaged in an evolution, not a revolution, he said.


"Strong partnerships is the common theme for us, and Mobil is a partner of choice," Comstock said.


But industry analysts say that regardless of its partners, Mobil clearly has become a more aggressive player in the unrelenting, worldwide search for oil and gas, and this carries big risks as well as potentially great rewards.


To some analysts, Mobil's offer for Ampolex is priced too high and its investment for a 25 percent stake in the Tengiz oil field in Kazakhstan faces great risk of possible Russian obstructionism.


Financing for a pipeline to carry the oil out of Kazakhstan to world markets has not been firmed up and the upcoming Russian elections could create Russian opposition to the deal.


Under an agreement with Kazakhstan, Mobil will purchase a 25 percent share in the central Asian oil field, and according to analysts, the field could yield as much as $5 billion a year in combined revenue for its owners once it reaches peak production.


"Kazakhstan is still risky," said Adam Sieminski, an analyst with NatWest Securities Corp. "Chevron has been kind of a lone wolf there for a while, and now they're teamed up with Mobil. But risk is part of the game for the major oil companies, and we just won't know until the year 2001 whether some of these deals are going to work out.


"I happen to agree ... that [Kazakhstan] will be one of the major oil plays of the early part of the next century. This is an enormous oil resource base. Mobil is making an educated guess that eventually the politics and economics will get straightened out and they want to be there at the outset."


Most analysts agree that two of Mobil's biggest problems may come in its strongest field -- production of natural gas and transformation of that gas into liquefied natural gas, or LNG, which can be shipped by tanker to power plants in the fastest-growing areas of the world.


Mobil's Arun gas field in Indonesia, often described as the company's "crown jewel," is aging and expected to show a decline in production early in the next century. Until recently, that giant field alone accounted for 20 percent to 30 percent of Mobil's earnings.


"For its size, there is no company in the world that financially relies more on LNG than Mobil," said the trade publication World Gas Intelligence recently in a report on Mobil's "aggressive position in international gas."


To make up for the decline in Arun, Mobil has invested heavily in two giant joint ventures to produce LNG from one of the world's largest gas fields, in Qatar in the Persian Gulf. The investment required in Qatar for LNG plants and tankers and the drilling of the gas fields eventually could reach $18 billion. It also could be worth billions of dollars in profit for years to come.