XOM Exxon Mobil Corp

By Sarah McFarlane and Bradley Olson 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 11, 2018).

Exxon Mobil Corp. is in talks with Qatar over a partnership that could see the Middle Eastern nation owning U.S. gas, people familiar with the matter said.

The potential deal could lead to the state energy giant Qatar Petroleum investing in Exxon's vast U.S. gas resources, extending from West Texas to North Dakota, according to the people, as both seek to deepen an already lucrative relationship each needs to face off current challenges. It could take the shape of a joint venture in which Qatar partners or invests in future wells with Exxon subsidiary XTO Energy, these people said.

Qatar wants to broaden its investments outside the Middle East and curry favor with Washington amid an economic blockade from Saudi Arabia and its Gulf allies. Qatar's leader is due to meet U.S. President Donald Trump on Tuesday.

Exxon's operations in Qatar are hugely profitable and it also needs Doha's financial support and signoff to proceed on a massive $10 billion natural gas-export project in East Texas. The development is critical to allowing the company to find markets abroad for its U.S. gas bounty as prices come under pressure domestically.

For Exxon, the talks also underscore the challenge many Western companies face as they seek to navigate growing rifts in the Middle East, where several countries are embarking on multibillion-dollar global expansions to diversify their economies.

"The relationship between Exxon Mobil and its affiliation with Qatar is deep, symbiotic and of significant strategic importance," said Ehsan Khoman, head of research for the Middle East and North Africa at Bank of Tokyo-Mitsubishi UFJ. "From Exxon's perspective, Qatar is by far its most significant international investment."

The talks could still break down and no deal has been finalized, the people said. An Exxon spokeswoman declined to comment. Qatar Petroleum didn't immediately respond to a request for comment.

The fate of the Golden Pass gas export facility in East Texas could hinge on a deal. The terminal is mainly owned by Qatar Petroleum, which has held off from agreeing to develop it with Exxon until it owns U.S. natural gas supplies.

"We are not going to proceed with that without upstream assets in the U.S.," Saad Sherida al-Kaabi, QP's chief executive, said in an interview.

While the world has been focused on rising U.S. oil production, gas output is also expected to hit record levels in 2018, according to the U.S. Energy Information Administration. Exxon wants to triple its production in the red-hot Permian basin in West Texas and New Mexico to 600,000 barrels a day of oil and natural gas by 2025.

As gas production from the region begins to exceed existing pipeline capacity, natural-gas prices from the region have plunged this year. Some analysts say this may have a knock-on effect on oil production for many companies. In the Permian basin, most natural gas is produced as a byproduct of drilling for oil. In the past, producers could flare the gas, or burn it at the wellhead, but that practice is set to fallout of favor due to pressure from state regulators and environmental groups. As crude output from the Permian basin continues to boom, operators who cannot find a destination for their gas may have to curtail their growth plans. Many are racing to avoid that outcome now.

Qatar is already one of Exxon's most profitable partnerships. The tiny country produces more than a quarter of the world's liquefied natural gas. In 2018, Qatar will account for about 25% of Exxon's after-tax cash flow and 16% of its oil and gas production, according to estimates from analytical firm GlobalData.

Outside of production in Qatar, Exxon and Qatar Petroleum have recently signed deals to explore for oil and gas off the coast of Cyprus and the two jointly bid for access to drilling rights in Brazil.

Qatar also is interested in investing in Exxon's Mozambique operations, and the two have discussed the possibility of setting up a joint trading operation to market liquefied natural gas, according to people familiar with the matter.

But while Exxon is eager to strengthen its ties to Qatar, the company also wishes to keep options open with Doha's antagonists. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt have enforced an economic blockade against Qatar since June 2017 to try to pressure Doha to scale back its ties with Iran, the Muslim Brotherhood and Turkey.

Exxon has been in discussions with Saudi Arabia on potential partnerships, one of the people familiar with the matter said. It already is in the final stages of evaluating plans to build a petrochemical complex in Texas in a joint-venture with state chemical company Saudi Basic Industries Corp.

Like Qatar, Saudi Arabia wants to gain a foothold in U.S. shale, while Crown Prince Mohammed bin Salman met with a number of U.S. technology, entertainment and energy companies last week to discuss possible investments.

For Qatar, owning U.S. gas assets is one way to court Washington. Qatar's emir, Sheikh Tamim bin Hamad Al-Thani, is due to meet with President Trump Tuesday to discuss ways to strengthen ties between the two countries and advance common security and economic priorities, the White House said.

The departure of former Exxon Chief Executive Rex Tillerson as the U.S. Secretary of State has clouded the picture for Qatar, one person familiar with the matter said. While Mr. Tillerson played no role in discussions between Exxon and Qatar, he was seen as sympathetic to Qatar in its dispute with Saudi Arabia and its allies, the person said.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Bradley Olson at Bradley.Olson@wsj.com

(END) Dow Jones Newswires

April 11, 2018 02:47 ET (06:47 GMT)

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