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Exxon Mobil (XOM)
Exxon Mobil to Increase Spending by 20%
Everyone seems to be looking out for oil news, as everyone is longing to see a fall in gas prices at the pump. Consumers lost some of their hope today due to OPEC's report that they wouldn't be increasing their production levels despite the nation's economic concerns. The cost of crude oil has been sky high recently, reaching record levels, with prices reaching above $104 a barrel in the past few days. If it seems that OPEC won't be the one to make changes, investors will likely be eyeing the oil companies to see what changes they will make. Exxon Mobil (XOM: Charts, News, Offers) has released some news today, but is it good news for the investors and consumers, or will it further increase the worries of rising gas prices and a declining economy?
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Exxon Mobil reported this morning that they will be significantly increasing their capital spending over the next five years. Between now and the year 2012, Exxon plans to spend a total of $125 billion, averaging about $25 billion per year. This money will be used for a variety of different projects, such as improving their technological tools and chemical plants, and increasing their refining capacity. Exxon hopes that these projects will enable them to produce more oil. Exxon has also pointed out that some of the additional cost is simply due to the fact that many of their expenses, such as labor and equipment, are rising and necessitate higher spending. About a week ago, Exxon reported that the amount it cost them to produce a barrel of oil rose 18% from the cost in 2007.
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Investors have had mixed reactions to today's news, sending the stock on a roller coaster ride throughout the day. Starting at $86.80 per share, the share price fell to $86.05 shortly after the market opened, rose to about $87.60 around noon EST, and has since fallen back to where it started the day. It is understandable that investors aren't quite sure how to react. On one hand, the amount of spending is quite a jump from last year; 2008 spending will be about 20% more than spending in 2007, and the spending in the following years is projected to remain at that higher level. On the other hand, investors are still remembering the fantastic year that Exxon Mobil had last year - that even though capital spending increased about 5% in 2007 from 2006, Exxon managed to record the highest profit of any United States company. With Exxon Mobil doing so strongly, it is feasible that they could still do very well even with this 20% increase in spending.
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Many other oil companies have spending figures that are just about as high as Exxon Mobil: the second largest oil company, Royal Dutch Shell, has budgeted $24 billion in spending, Chevron (CVS: Charts, News, Offers) has budgeted almost $23 billion, and BP (BP: Charts, News, Offers) has budgeted $22 billion. It is not surprising, therefore, for Exxon Mobil, the largest oil company of them all, to have a spending budget above all of its competitors. In fact, one would probably worry if Exxon didn't show that they were keeping up with their competitors. Although this amount is higher than the amount Exxon previously predicted they would be spending per year, it still is very reasonable, considering the rising costs they are facing and their goal of increasing production.
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Exxon Mobil's stock has been falling recently, losing about 7% so far this year, as investors consider the fact that energy spending might decrease since consumers are worried by economic decline. There's a good chance that shares would increase if investors began to see signs of the economy turning around, but until that point, this report from Exxon might turn out to be an indicator of future good performance for the company. If the company can make some significant progress and improvements, based on the additional spending they've budgeted, perhaps investors will view the company more favorably, pushing their stock back up. But if investors aren't thrilled by the results, it's likely that their stock will continue to fall as long as investors continue to be faced with the ongoing battle of this struggling economic situation.
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