A report was published by the Financial Times which delineated various debts issued by significant energy companies in this year. It ought to be noted here that the amount of issued debts is quite large. The prices of crude oil have been going downhill across the globe, and owing to this reason as a consequence the profit margins have also decreased. In such a situation, maintenance of cash is a serious issue for oil companies. To cope up with this challenge, issuance of debt appears to be the best option.

This same report of Financial Times incorporates a quote of Morgan Stanley. Stanley asserts that the statistics of debt issued in the first quarter of fiscal year 2015 by important oil companies, of both United States and Europe, has escalated a great deal. To be precise, the increase in this issued debt amounts to approximately 60%. This increase is in comparison to the debt that was issued in the last quarter of the year 2014. Rather, the figures of this year also break the record that had been set six years ago about issued debt.

In these circumstances, smaller companies are the ones which have to face a bigger challenge. The survival of such companies is in jeopardy; while larger companies on the other hand can survive anyhow. Their size, market shares and dominance makes this possible. Borrowing prices continue to move up the scale for smaller companies in the market. As a consequence, many such companies have resorted to the last option i.e. they have put themselves up for sale.

Other bigger companies such as Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) have started issuing greater amounts of debt in this context to purchase these smaller companies that have put themselves up to sale. Bonds amounting to approximately $31 billion  were issued in merely two months i.e. January and February of fiscal year 2015 by Exxon, Chevron, BP plc (ADR) (NYSE:BP), and Total SA (ADR) (NYSE:TOT). The total amount of debt issued by all oil and gas companies across the world was $63 billion which means that this $31 billion is almost half of the total debt.

There are also speculations and a very likely possibility that these oil companies would now be heading for acquisitions. Martjin Rats, a US bank analyst, said in this context, that the present conditions have rendered smaller companies very vulnerable and ideal targets for acquisition.

Furthermore, maintenance of dividends is another significant factor in order to ensure survival in a situation where the crude oil prices are tumbling down. Thus the cheaper solution to get through this mess is to fund greater projects and make sure that debt issuance takes care of dividends.

In accordance with this strategy, nearly all oil companies are striving for the maintenance of appropriate dividends. However, in contrast to this popular strategy, Eni Spa (ADR) (NYSE:E) has chosen to go for a completely different mode of action. It stands as an exception in the market, since it has decided to cut down its dividends instead of maintaining them.

Speculators at Wall Street started their guessing game long before 2015 even begins, what would it take for the two oil giants to top the list. This research goes much deeper into the issue then just coming to a conclusion through random guesses.

The thing with DJIA stocks is that it fluctuates with sentiments, too high when they are good and too low when they are negative. So what are the sentiments surrounding these two big oil giants. At last Monday’s closing, Chevron (NYSE:CVX) was the second worst for DJIA stocks with a return below -7.3%. On the other hand Exxon (NYSE:XOM) stood third in line of worst performing Dow stock for 2014. Its loss tipping at almost 6.2%. Speculators still had a much better picture predicted for the two, with Exxon (NYSE:XOM) loss at 4% and Chevron (NYSE:CVX) gain of at least 6%.

At this stage, next year’s predictions are yet unstable. It seems the oil patch has to fall even further down before the recovery stage even begins and leads it up to a profit earning stage. It drop from $100 to $65 is quite bad. Another element to be taken into consideration that bother Exxon (NYSE:XOM) and Chevron (NYSE:CVX) are market leaders with $600 billion in combined market capitalization even after the recent setback. Hence, both have the power to seek out better opportunities in these troubled times.

Both companies also have a standard to maintain, for example ever though Exxon (NYSE:XOM)’s dividend for the year rounds up to $2.76 EPS but its Thomas Reuters prediction is set at $7.59 EPS for this year and $6.58 for 2015. Similarly Chevron (NYSE:CVX)’s divided is $4.28 for the year with estimates set as high as $10.08 EPS for 2014, and $9.14 for 2015. This could actually tempt the companies to lower their spending further and use that money for stock buybacks.

But on the other hand one might think that maybe the bad news it yet to come. Exxon (NYSE:XOM)’s shares trade at $92.40, against a 52 week, ranging between $86.91 and $104.76, with the consensus price target of $100.44. The company’s dividend yield for now is 3.0%, with chances of growth. Whereas Chevron (NYSE:CVX) trades are at $111, with the 52 week range of $106.65 to $135.10 and the consensus price set rising above $130. Its dividend yield is 3.9%.

Companies all around are responding differently to these predictions. Some are lowering their targets while some still have hopes set on them being the high yield dividends for 2015.

Exxon Mobil Corporation (NYSE:XOM) earnings are still expected to rise slightly, on to better thicker downstream margins and better upstream. The world’s largest publically traded oil and gas stock generates revenue that go in excess of $420 billion, and it is expected that the profit for the company will stand at $7.54 per share for the current quarter, if the strong performance of the companies continues in the final quarter of the fiscal year. Exxon Mobil Corporation (NYSE:XOM) sold liquid hydrocarbons which include crude oil, natural gas liquids, bitumen oil contributed to a better upstream volume. Liquid hydrocarbons have a better and higher price realization than natural gas. Exxon Mobil Corporation (NYSE:XOM) had a price realization of $41 per barrel. The proportion of liquids from crude oil therefore happens to be the key driving factor in cash margins that are earned by production and exploitation companies by barrels of oil equitant. Hence, Exxon Mobil Corporation (NYSE:XOM) is continuously trying to improve the percentage of liquids in its production mix by slowing down its development program of shale gas in the United States. The percentage of liquid in the production mix stood at 51.5% in 2012 and 52.7 % in 2013, and it is expected that the proportion will rise in 2014.

The first nine months saw a decrease in the production capacity of Exxon Mobil Corporation (NYSE:XOM), as its liquid production reduced by 104,000 barrels per day, when its contract to explore and produce crude oil in Abu Dhabi expired. Exxon Mobil Corporation (NYSE:XOM) lost its 75 year old rights to the emirate’s oldest producing fields in January of this year. However its liquid production actually increased for the year on year, by 1.4% for the first 3 months of the fiscal year. However, its natural gas production was down by 5.8% year on year, as its production of natural gas declined by more than 700 million cubic feet per day. Exxon Mobil Corporation (NYSE:XOM), however, still expects its liquid production to increase by at least 2% when its fiscal year ends while expecting the natural gas production to decrease by 3% year on year. This will help in better price realization per barrel of oil and will drive profits upwards.

It is worth mentioning here that three months back Exxon (NYSE:XOM) was hopeful for per share earnings of $1.93 for the third quarter. The results however were not as expected and earnings per share of $1.71 for quarter ending Sep 30 recorded an 11 percent decline. As compared to last year’s third quarter this year net income registered a 3 percent or $200 million increase and stood at $ 8.07 billion. Exxon was able to counter the declining revenues from decreasing oil prices and production through strong refining operations. Exxon spent $ 3 billion in third quarter in order to reduce outstanding shares when it purchased 30 million shares of common stock for the treasury.

Third quarter earnings report of Exxon (NYSE:XOM) provided many other vital statistics. Statistics like production was 3.831 million BOE/Day, operating cash flow was $12.4 billion, U.S. downstream net was $460 million. International downstream net was $564 million, International upstream net was $5.16 billion, U.S. upstream net was $1.26 billion, oil-equivalent production declined by 4.7 percent, capital expenditures were $9.84 billion and dividends per share increased by 9.5 percent to $0.69.

Commenting on the results of third quarter, Exxon Chairman Rex Tillerson informed that increase of 3 percent in Exxon’s (NYSE:XOM) earnings in the third quarter from corresponding quarter of 2013 was mainly due to higher margins and superior performance in the downstream and chemical businesses. This to some extent has balanced the effect of lower upstream realization. He further reiterated that strength of Exxon Mobil’s integrated business model has been exhibited by this quarterly result. Required immunity against the market variations over the business cycle has been achieved at Exxon Mobil through a comprehensive integration between Upstream, Downstream and Chemical businesses. This gave them viable advantage in scale, efficiency, technical and commercial capabilities. During the first three quarters of year 2014, cash collections from asset sales and operations were able to completely cover net investments and share holder distributions.

Rex Tillerson also pledged that the corporation would continue to fulfill all milestones related to operations and project development. In 2014, Upstream production remained at par with last year’s estimate of 4 million oil equivalent barrels per day due to the fact that Exxon (NYSE:XOM) continued to include latest production from project startups.

On Thursday, Exxon’s shares closed at $94.45 registering a drop of 0.15 percent, however, the initial reaction in the premarket was good after the release of earnings report with share price of $96.20 showing almost 2 percent rise. In addition, market capitalization of Exxon (NYSE:XOM) is almost $402 billion.

The merger between BP (NYSE:BP) and Royal Dutch Shell (NYSE:RDS.A) had been expected for quite some time now, especially since the two companies have taken the matter into consideration every now and then. However, in this week’s Lex Column by the Financial Times, another prospect has been brought into the limelight. It is said that there might be new interest in BP (NYSE:BP) from Exxon Mobil (NYSE:XOM).

Exxon (NYSE:XOM) has a lot of capital at hand and it is looking to invest it somewhere. According to estimates for next year, Exxon (NYSE:XOM)’s cash flow might exceed $11 billion. However, there are not many opportunities for it to invest its capital and generate profit from there.

Exxon (NYSE:XOM) has managed to disappoint its shareholders by stirring $41 million in U.S shale plays and made an incorrect decision by investing in XTO (NYSE:XTO) at the wrong time. It also invested in some other projects in Iraq, Kurdistan and Russian Arctic, all of which backfired due to political issues.

The observations made by FT seem reasonable, because Exxon (NYSE:XOM) has access to the capital which can be used to attract production prosperity. By collaborating with BP (NYSE:BP), Exxon (NYSE:XOM) can get the aid to boost their production. BP (NYSE:BP)’s production chart has been ascending despite the legal problems that the company is facing. As far as BP (NYSE:BP)’s legal issue with the handling of the deepwater horizon is concerned, it will be a blessing in disguise for Exxon (NYSE:XOM) as the company will be able to trade BP (NYSE:BP)’s shares at 25% discount. This is expected to initiate quick profits.

Exxon (NYSE:XOM) is more knowledgeable as compared to other oil companies when it comes to long term legal issues and therefore BP (NYSE:BP)’s problem with the Deepwater Horizon will not be too overwhelming for Exxon (NYSE:XOM).

Exxon (NYSE:XOM) is known for its single culture with safety as its main focus. BP can heave benefits from this change of culture. BP hasn’t been able to fully adapt to the cultures that it came across with its previous mergers that took place in the late 90’s. However BP (NYSE:BP)’s production portfolio will be beneficial for Exxon (NYSE:XOM). Although the merger of the two companies seems to be beneficial for both; the question that arises is, whether Exxon (NYSE:XOM) is ready to undertake the cultural challenges that the company will have to face once it collaborates with BP (NYSE:BP).

Work halted just a few days after the United States and the European Union issued a sanction that prevented companies from aiding the Russians exploit deep water or shale oil field in the Arctic. This information was provided by three individuals who were involved with the company’s operations but were not authorized to speak on the matter. The sanctions by the United States were meant to levy a penalty against Russia for amplifying tensions in Ukraine, and gave companies in the United States a grace period that will last until September 26^th, to cease all restricted drilling and testing services.

In addition to Exxon, Seadrill Ltd and North Atlantic Drilling (NADL) are under immense pressure to complete, or at least temporarily seal, the $700 million oil well just off of Russia’s northern coast before the deadline and the sanctions go into effect. According to the chief energy strategist at Prime Executions Inc, Chris Kettenmann, with only eight days before the United States sanctions prohibit Exxon from any work in the Arctic with Rosneft, the company’s partner in Russia, the project will most likely be put on hold until next year, which is the earliest that it would resume.

Prime Executions Inc is a brokerage firm located in New York.

Mr. Kettenmann said that this oil well has been one of the most watched wells in the industry, so the issue with this particular one is a big deal.

Ever since the USSR was broken up about 25 years ago, companies from the United States and other European countries have all pitched in the help rebuild Russia’s energy industry, hoping to obtain some of its oil reserves, which is estimated to be about 75 billion barrels.

Key Points

The well was the initial venture into tapping into about 9 billion barrels of crude deep oil deep under the Kara Sea floor. The amount of oil is worth roughly $885 billion at today’s prices. It is vital to both Exxon’s efforts to pick up decreasing production as well as Russia’s goal of finding new oil fields to replace its faltering Soviet-era wells.

A spokesperson from Exxon refused to comment on the issue. Dick Keil, the company’s spokesman, stated that the company is still in the process of assessing the sanctions, but will fully comply with all regulations and laws. Representatives from Rosneft did not respond to a request for comment.

Europe and the United States have levied a series of increasingly stringent sanctions against Russia since its takeover of Crimea in March of this year and the support for Russian separatists in the eastern region of Ukraine. These sanctions have pushed Russia’s economy nearly to a recession, and the lasting impact could be for two or three years, according to Alexei Kudrin, the former Finance Minister of Russia.

Shutting Down

The dilemma that Exxon faces is that it must give itself enough time to safely shut down the well before leaving it.

According to industry experts, Exxon would do best to stop where they are now, and take the week that is left to set in plugs in the well and pull out the anchor and blowout protector.

Russian partner Rosneft has already suffered from the consequences of the sanctions, and has struggled to finance itself and acquire technology.