Exxon to Proceed with Canada Oilfield Project

Written by: Tsveta van Son
January 7, 2013

Exxon Mobil (NYSE:XOM), the world’s largest energy company by market value, announced that it was proceeding with its $14 billion (£8.7 billion) Hebron oil field project off Canada’s east coast. As reported by Bloomberg on January 7, the investment is seen as a way for the energy giant to hedge against discounted crude from Canada’s oil sands. As a result, the news helped lift Exxon’s share price on the New York Stock Exchange late on January 4.

**Exxon Proceeds with $14 Billion Hebron Project**
In a press release, the Texas-based Exxon Mobil said that it would develop the Hebron oil field project located offshore the Canadian province of Newfoundland and Labrador. The company noted that it would use a gravity-based structure to recover more than 700 million barrels of oil at a rate of 150,000 barrels of oil per day, an increase from previous estimates. Exxon noted in its statement that the project had received regulatory approval from the governments of Canada and Newfoundland and Labrador in May.

Capital costs for the project, scheduled to start producing at the end of 2017, are expected to reach $14 billion. Bloomberg reports that Exxon’s partners in the Hebron oil field project include Chevron Corp (NYSE:CVX), Suncor Energy (TSE:SU, NYSE:SU), Statoil ASA (NYSE:STO)as well as the Newfoundland and Labrador provincial energy company Nalcor Energy Corp. Exxon holds 36 percent stake and is the operator of the project.

“Hebron is one of several large-scale oil developments that Exxon Mobil will bring on stream in the next five years,” pointed out Neil Duffin, president of Exxon Mobil Development Co, as quoted by Bloomberg.
**Hedge against Discounted Oil Sands Crude**
Bloomberg reports that Newfoundland and Labrador oil is priced off the global benchmark, almost twice as high as western Canada’s heavy crude, which will in turn help Exxon to add to profit growth. “The better pricing is definitely an issue,” notes Brian Youngberg, an analyst at Edward Jones & Co, as quoted by Bloomberg. “While things could change in the time it takes to finish the project, it’s a great way for Exxon to hedge their pricing.”

!m[News Lifts Exxon Share Price](/uploads/story/1140/thumbs/pic1_inline.png)
Reuters reports that Exxon Mobil’s shares were up 53 cents at $89.08 on the NYSE late in the session on January 4.
**Newfoundland Challenges**
Despite the positive price prospects, the Hebron project will involve significant challenges with Exxon noting in its press release that it will “employ its expertise in Arctic development and project execution to develop this world-class resource in challenging operating conditions.”

Bloomberg reports that Newfoundland has traditionally been one of Canada’s least-developed provinces although in recent years oil exploration has helped the region’s economy expand at a faster pace than Ontario, Canada’s most populous province. “The economics work, it’s challenging, but the resource is there, so why wouldn’t you develop it,” noted Parker at T. Rowe Price International, as quoted by Bloomberg.
“Hebron will support jobs, the economy and strengthens our province’s position as an energy warehouse,” said Kathy Dunderdale, Premier of Newfoundland and Labrador, as quoted by Bloomberg. The province has a 4.9 percent stake in the project through its ownership of Nalcor Energy Corp.
**The Exxon share price was 0.46 percent higher at $88.96 as of 07 January 2013, at 7:30 a.m. EST.**

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