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Financial Times: Exxon rules out paying special dividend (Exxon takeover of Shell?)

By Doug Cameron in Chicago
Updated: 3:12 p.m. ET March 8, 2006
Exxon on Wednesday ruled out paying a special dividend, a stance that leaves the world's largest listed oil and gas group well-positioned to make a “substantial” acquisition.
The US group has sat out the latest round of industry consolidation, using record profits from high energy prices to fund $25bn in stock buy-backs and dividends last year and to build a cash pile of $33bn.
Rex Tillerson used his inaugural analysts' presentation since taking over from Lee Raymond as chairman and chief executive in January to deny that Exxon would follow BP, its smaller rival, which last month announced it would return up to $65bn to shareholders over the next three years, partly through special dividends.
“It's not evident that it does anything for the long-term investor,” said Mr Tillerson, noting that one-off measures appeared only to “scratch the immediate gratification itch” of shareholders.
His comments raised expectations among investors and analysts that Exxon may turn its attention to acquisitions at a time when the company's excess cash generation is at an all-time high, dividends remain at historic lows and capital expenditure is broadly flat.
Net profits in 2005 rose 23 per cent to $10.3bn and the company generated almost $45bn in operating cash. Exxon's expanding portfolio of natural gas projects has led many analysts to identify UK-based BG as a potential target, with Royal Dutch Shell and Repsol of Spain also seen as good strategic fits.
Mr Tillerson declined to comment on the likelihood of any deal soon, but said it would have to be “substantial” to make a difference to Exxon's portfolio. “For us, it's got to be large [and] in line with our core business holdings today,” he told analysts in New York.
Exxon's resource base grew to 77bn barrels of oil equivalent at the end of 2005 after a string of new projects – notably its liquefied natural gas developments in Qatar – came on-stream, lifting its closely-watched reserve-replacement ratio to 143 per cent.
Mr Tillerson said the company was “well-positioned relative to any of the competition” to take advantage of opportunities in the Middle East at a time when dwindling reserves elsewhere have made the region the focus of industry development, alongside Russia and west Africa.
“My own expectation is that over time we will gain access to additional resources in the Middle East,” he said, pointing to the potential emergence of opportunities in Kuwait and Saudi Arabia.

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