On Wednesday April 24th Exxon Mobil Corp. (XOM) announced a quarterly dividend increase of $0.06/share to bring its upcoming dividend payout to $0.63/share. It should be noted that this increase represents a 10.5% rise from its prior dividend of $0.57/share which was paid on February 7th. In the wake of Exxon Mobil's dividend increase I wanted to examine several of the catalysts behind my decision to establish a long-term position in this particular oil & gas play.
Overview: Shares of XOM, which currently possess a market cap of $399.80 billion, a P/E ratio of 9.23, a forward P/E ratio of 10.89, and a very high PEG ratio of 4.94, settled at $89.43/share at the end of Wednesday's session. Based on Wednesday's closing price, shares of XOM are trading 0.76% above its 20-day simple moving average, 0.59% above its 50-day simple moving average, and 1.47% above its 200-day simple moving average. These numbers indicate a short-term, mid-term and long-term uptrend for the stock which generally translates into a buying mode for traders.
Papua New Guinea Prospects: On April 24th it was also announced that InterOil's (IOC) promise to come up with a credible partner for its LNG project in Papua New Guinea may mean it needs to make an announcement "in a matter of weeks" and Exxon Mobil may be the most likely partner, according to PNG Industry News. Why is Exxon Mobil such a fitting suitor? I personally think it's because they have an established position in the region, although delays have hiked costs 20% above the company's budget.
In a recent article featured on the PNG Industry News website, it was noted that a "U.S.-based executive of Exxon Mobil has recently been quoted in the media as suggesting the Port Moresby site has a capacity to house five LNG trains". Currently there are two LNG trains at the Port Moresby site and a third would most likely be constructed if both Exxon Mobil and InterOil were to join forces on this project.
According to comments made by Rex Tillerson at Exxon Mobil's 2013 Investor Conference, "In 2012, Exxon Mobil's return on capital employed was an industry-leading 25.4%, about 7 percentage points higher than our nearest competitor. Over the past five years, ROCE averaged 24.4%, about 6 percentage points higher than our nearest competitor. This industry-leading ROCE performance is despite low natural gas prices and ongoing large investments such as Kearl -- the Kearl oil sands project and our large development of the Papua New Guinea LNG project, both of which have yet to contribute our earnings". Once the PNG LNG project is brought on-line I strongly believe there could be added boost to the company's ROCE in the first 12-24 months of operation.
Enhancing Its Partnership with Rosneft (RNFTF.PK): Although both Exxon Mobil and Rosneft have teamed up to build a $15 billion dollar LNG plant by 2018, it's the possibility of a partnership in Iraq that actually intrigues me. On April 23rd it was announced that Rosneft may be considering teaming up with its long-standing partner Exxon Mobil in an effort to tap oil and gas production in Iraq.
According to Upstream Online, "Exxon Mobil has long been rumored to be looking to significantly farm down its stake in the giant Iraqi oilfield, but has since poured some cold water on such reports, promising in late March to allocate $1.65 billion to develop the field this year". I personally think partnership accomplishes what Exxon Mobil has been looking to achieve all along. Not only would this potential partnership allow Exxon Mobil the ability to develop the oil field in Baghdad, but it would also allow the company to continue to focus on the developmental interests it has to the north in Kurdistan.
Recent Earnings: On Thursday April 25th Exxon Mobil announced its Q1 earnings results, and although net income surpassed estimates, revenue missed estimates by 9.20%. Analysts were expecting Exxon Mobil to earn $2.05/share in EPS on Revenue of $119.83 billion, although the company's EPS came in at $2.12/share; Revenue was a bit light coming in at $108.8 billion. What were some of the culprits behind the mixed performance of Exxon Mobil?
According to a Market Current featured on Seeking Alpha, "E&P earnings declined 9.8% to $7.04B as total oil and natural gas production fell 3.5% year-over-year to 4.395 million boe per day. Refining and marketing earnings fell 2.6% to $1.55 billion while refining-driven margins increased earnings by $780 million. Chemical profits rose 62%; corporate and financing expenses fell sharply due to "favorable tax impacts".
Conclusion: Although the company's most recent earnings were a mixed bag at best, I'd actually be more inclined to keep a closer eye on any developments that may arise in either Iraq or PNG, simply because both regions could play a factor in the company's future earnings growth.