March 4 (Bloomberg) -- Exxon Mobil Corp., the world’s largest oil company, will probably tap its $31.4 billion mountain of cash to buy stakes in offshore fields from state oil companies rather than mounting takeover bids for major rivals.

When the Irving, Texas-based company holds its annual analyst meeting tomorrow in New York, investors will want to know whether Chief Executive Officer Rex Tillerson will try to buy his way out of the deepest output slump in a decade. Royal Dutch Shell Plc, Europe’s biggest oil company, said yesterday that it’s looking for deals as the credit crunch and a $100-a- barrel drop in crude prices force producers to sell assets.

Exxon Mobil, which pumps more oil than every member of OPEC except Saudi Arabia and Iran, is sitting on a cache of almost $200 billion of its own shares that could be used to buy another major producer. The company is more likely to buy stakes in African, Iraqi or Brazilian fields that state-owned companies are too poor to develop, said Brian Youngberg, an analyst at Edward Jones & Co. in Des Peres, Missouri.

“These nations are looking for partners with deep pockets as well as the expertise to reach very deep and remote reserves,” said Youngberg, who rates Exxon Mobil shares “buy” and doesn’t own any. “The obvious opportunity is Brazil, where if oil stays at $40 much longer, the national oil company may have to get a partner to the table that has a lot of cash.”

Exxon Mobil is coming off the most profitable year in U.S. history as well as its worst stock-market performance in 27 years. Tillerson has been unable to stem declines in oil and gas output even as he invests $25 billion to $30 billion a year in capital projects. Production fell last year below the equivalent of 4 million barrels of oil a day for the first time since Exxon Corp.’s 1999 acquisition of Mobil Corp.

Takeover Prospects

“A lot of people are speculating that Exxon will do a major deal, but my view is that’s not likely,” said Philip Weiss, an analyst at Argus Research Corp. in New York who rates the company’s shares “buy” and owns none. “The political climate is such that it wouldn’t allow a deal of that size to happen.”

Rather than pursuing takeovers, companies such as Shell and Exxon Mobil will probably buy stakes in massive projects planned by cash-strapped state oil companies, said Nansen Saleri, CEO at advisory firm Quantum Reservoir Impact in Houston.

“The companies who can bring the best capital deals will be in the best position to strike the best contracts,” said Saleri, former reservoir-management chief at state-owned Saudi Arabian Oil Co.

Brazilian Prospects

Brazil’s state-controlled energy company, Petroleo Brasileiro SA, announced the largest petroleum discovery in the Americas in 2007, part of a group of offshore prospects that may hold 100 billion barrels of oil, according to the president of the country’s association of petroleum geologists. The company had to borrow money last year because it was short of cash to pay taxes, according to Brazil’s Energy Ministry.

In December, Tillerson said he’s not interested in purchasing rivals because assets remain overpriced after crude surged to a record $147.27 a barrel in July. Instead, Exxon Mobil spent $32 billion buying back shares last year, swelling the number held in the company’s treasury to more than 3 billion at the end of December, a public filing showed.

Using treasury shares, Exxon Mobil could make a deal for more than the combined value of its two biggest U.S. rivals, Chevron Corp. and ConocoPhillips, without borrowing money, issuing stock or tapping its cash.

‘On the Prowl’

Among the world’s largest publicly traded oil companies, only Beijing-based PetroChina Co. has a market value higher than Exxon Mobil’s stockpile of shares in treasury.

“Exxon has got to be on the prowl right now,” said Gianna Bern, president of Brookshire Advisory & Research Inc. in Flossmoor, Illinois. “In this environment, mergers and acquisitions have to be a consideration simply because at current oil prices, the economics are absolutely more compelling than in years gone by.”

Tillerson, 56, declined to be interviewed for this article. U.S. oil and gas futures have both dropped more than 70 percent from last year’s highs.

U.S. and European regulators probably would frown on any attempt by Exxon Mobil to buy a major rival such as Houston- based ConocoPhillips or Total SA of Paris because of concerns about concentrating too much of the refining industry in a single company, said Weiss of Argus Research.

Stock Buybacks

Tillerson has been telling analysts and reporters since 2006 that buybacks serve to return cash to investors and build a reserve of stock that will be available if acquisition opportunities arise. His predecessor, Lee Raymond, who orchestrated the $87.7 billion Mobil deal almost a decade ago, said the same thing before he retired three years ago.

Tillerson may devote most of tomorrow’s presentation to a $30 billion-a-year spending plan for exploration, refinery expansions and new gas-export terminals.

“They keep their cards pretty close to the vest, but I don’t think they’ll go after anything of great size,” said Douglas Ober, who manages $585 million as chief executive officer at Baltimore-based Petroleum & Resources Corp., which counts Exxon Mobil as its largest holding. “They’ve got enough prospects of their own to keep production going.”

Since Tillerson became CEO in January 2006, Exxon Mobil has risen 15 percent. That compares with declines of 23 percent and 44 percent, respectively, for Shell and the Standard & Poor’s 500. Since the Sept. 15 bankruptcy filing by Lehman Brothers Holdings Inc. heralded the meltdown of global credit markets, Exxon Mobil has been the best performer in the Dow Jones Industrial Average.

Cheaper Than Production Costs

The collapse in oil and gas prices has cut the value of some energy producers to below what it costs Exxon Mobil to pump crude from its wells, according to data compiled by Bloomberg. Seven major oil companies, including Total and London-based-BP, are trading for less per barrel of their reserves than Exxon Mobil’s average 2008 production cost of $8.72.

Russia’s Rosneft Oil Co. is at the bottom at $2.35 a barrel, followed by Austria’s OMV AG at $4.93 and ConocoPhillips at $5.21, Bloomberg data showed. Madrid-based Repsol YPF SA, Italy’s Eni SpA and Suncor Energy Inc. of Canada also fell below Exxon Mobil’s production cost per barrel. Exxon Mobil trades at $15.30 per barrel of reserves.

A takeover paid for with Exxon Mobil stock may be attractive for companies with beaten-down valuations because the shares have potential to gain in value, said Bob Gray, a partner at the Mayer Brown law firm in Houston.

“A lot of CEOs will say, ‘I ain’t selling my company right now when it’s at a 15-year low because how am I going to explain that to my shareholders?’” Gray said. “But Exxon can say, ‘Here’s the upside: If you accept our shares, we think we’re going to make a comeback.’”

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.

Last Updated: March 4, 2009 01:00 EST