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Eventual Groningen shutdown can’t be ruled out, hitting Exxon, analyst says

|About: Exxon Mobil Corporation (XOM)|By: , SA News Editor

Exxon Mobil’s (XOM -1.4%) organic growth could be hurt by problems at the Groningen gas field it shares with Royal Dutch Shell, as production caps caused by rising earthquakes in the region eventually could even lead to a total shutdown, says Raymond James analyst Pavel Molchanov.

“An eventual field shutdown, which cannot be ruled out, would erase nearly all of Exxon’s organic growth through 2020,” Molchanov writes, seeing little chance that the top Dutch administrative court will grant the oil companies’ appeal against the most recent strict cuts.

For XOM, compliance would mean an incremental reduction of 72M cf/day from Q4, erasing 0.7% of the company’s gas volumes, and 0.3% of company-wide oil and gas volumes – more of a hit than might first appear, given the context of a company with a 1% targeted organic growth rate.

The government is not in favor of a total production halt, but the current policy essentially seems to amount to a controlled phase-out, the firm says; whether it occurs abruptly or gradually, a full shutdown – with the resulting loss of 2.9% of XOM’s production – “cannot be ruled out over the medium term.”

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