Good companies, like good investors, must know how to ignore day-to-day news and concentrate on the big picture. ExxonMobil (NYSE:XOM) has proven it is such a company by staying committed to Russia despite the downing of Flight MH17.
ExxonMobil has demonstrated its commitment to Russia by sending the West Alpha, a new drilling rig, to be jointly operated by ExxonMobil and Rosneft (OTC:RNFTF), to the Kara Sea, just north of European Russia. Media reports indicate that the West Alpha will search for oil and gas in the region.
This kind of commitment is critical for ExxonMobil right now as pressure to sanction Russia and demonize Vladimir Putin grows. It also shows that ExxonMobil CEO Rex W. Tillerson understands that political situations change. Putin will be gone in a few years and the crisis in the Ukraine will be settled, yet the oil and gas will still be there.
By sticking by Russia at this time, Tillerson and ExxonMobil are buying valuable goodwill in Russia. The Russians will remember who stuck by them during a time of tension and simple-minded saber rattling and who stabbed them in the back.
Russia is now a dominant player in the oil business; it pumps more oil than Saudi Arabia. Vladimir Putin may not be politically correct these days, but he has a lot of oil and he probably isn't going away any time soon. Making friends with Putin and sticking by him is a good business decision.
In particular, it gives ExxonMobil access to the Arctic, a region that might hold one fifth of the world's undiscovered and recoverable oil and gas resources, according to the U.S. Geological Survey. Tapping the Arctic Sea is critical to ExxonMobil's future and Russia's future.
Why ExxonMobil Needs Vladimir Putin
This is the kind of long-term, big picture thinking that builds great companies and makes for real value. It also shows that Tillerson understands that ExxonMobil needs to tap new sources of oil, gas, and revenue-and soon.
Chart watchers know that ExxonMobil's TTM revenue has been falling for the last few years. In March 2013 ExxonMobil reported a TTM Revenue figure of $496.48 billion; in March 2013 ExxonMobil reported a figure of $465.56 billion; and in March 2013 it reported a TTM revenue of $436.47 billion.
The charts clearly show that ExxonMobil's revenue has fallen by around $60 billion in the last two years. Obviously, ExxonMobil can afford such losses in the short term but not in the long term. It needs to tap new sources of revenue and fast.
With anti-fracking hysteria in the U.S., lawsuits and bureaucracy effectively keeping the U.S. and Canadian Artic off limits to oil and gas exploration, and the crisis created by ISIS in the Middle East, Russia is the only place for ExxonMobil to go. Creating goodwill in that country is critical for ExxonMobil's future.
ExxonMobil's plan to steer the course in Russia demonstrates the kind of big picture thinking that makes it a great value play. It also validates Warren Buffett's habit of looking beyond the headlines. If you want a long-term big oil play, ExxonMobil is a very smart investment right now, particularly if you're willing to ignore the headlines.
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