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Exxon's Telok Starts Production

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U.S. energy behemoth ExxonMobil Corporation’s (XOM - Free Report) Malaysian affiliate − ExxonMobil Exploration and Production Malaysia Inc − has commenced production from the Telok natural gas field, offshore Malaysia in the South China Sea. The start-up aims at meeting the rising demand for natural gas in Peninsular Malaysia.

The development of Telok, located about 124 miles (200 kilometers) offshore the east coast of peninsular Malaysia in the South China Sea, was accomplished on time and well under budget. It was under a 50/50 joint venture between Malaysia's Petronas Carigali Sdn Bhd (PCSB) and the operator ExxonMobil.

The Telok A platform marked the first phase of this gas development project. The companies have planned for 14 development wells in all for Telok's A and B platforms. The latest development is a part of numerous upstream ventures announced under Malaysia's Economic Transformation Program of 2011. It involves the investment of more than $3.2 billion by ExxonMobil and PCSB in new oil and gas properties. This would ensure a constant flow of energy supplies for the country.

ExxonMobil in recent times has been found to be struggling to grow production volumes. In fact, the last six quarters saw production declines for the oil major. For this year, XOM expects production to decline 1% due to weaker natural gas output. ExxonMobil however estimates annual production to climb 2% to 3% per year through 2017.

The latest start-up of the gas field as well as ExxonMobil’s 2010 purchase of XTO Energy Inc. is expected to be positive catalysts over the longer term. We are yet to see any material benefit, given the continued weak natural gas prices. The XTO deal positioned ExxonMobil as the largest natural-gas producer in the U.S. With natural gas accounting for almost half of ExxonMobil’s fourth quarter 2012 production, we remain cautious due to the tempered outlook on natural gas prices for the future.

ExxonMobil nevertheless is balancing its production profile with more tilt towards liquids than gas. This is expected to result in more meaningful production in the next five years and beyond.

ExxonMobil holds a Zacks Rank #3, which is equivalent to a short-term Hold rating. However, there are other stocks in the oil and gas sector that are expected to perform better. These include Range Resources Corporation (RRC - Free Report) , NGL Energy Partners LP (NGL - Free Report) and Valero Energy Corporation (VLO - Free Report) . Valero sports a Zacks Rank #2 (Buy), while Range Resources and NGL Energy carry a Zacks Rank #1 (Strong Buy).

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