There are continuing signs of improving oil fundamentals which will benefit Exxon Mobil (NYSE:XOM) along other supermajor oil & gas companies. The U.S. Energy Information Administration's [EIA] released crude inventory data for the week ended June 17, which showed that the U.S. stockpiles were down by another 900,000 barrels in the week.
According to Baker Hughes (NYSE:BHI) most recent report, the U.S. oil rig count rose by 9 to 337 last week. The rig count increased for a third-straight week, the longest streak since last August. One gas rig was added, taking that category's total to 86. Combined U.S. oil and gas rig count rose 10 to 424. Also, Canada rig count increased by four to 69, and international rig count increased by nine to 955. In my view, the third-straight week of growing rig count albeit moderate is an indication that producers believe that the worst for oil prices is over. According to OilPrice.com, market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year.
Source: Baker Hughes
Oil prices have shown a significant rebound in the last five months. The last price of Brent crude oil $50.30 per barrel is already up 59.6% from its 12-year low on January 20 of $31.52, while WTI crude oil last price of $49.57 per barrel is up 52.3% from its January 20 low of $32.54.
Brent Crude Oil, August 2016 Leading Contract With 50 Day Moving Average
WTI Crude Oil, August 2016 Leading Contract With 50 Day Moving Average
Charts: TradeStation Group, Inc.
According to OilPrice.com's article from June 21, Exxon Mobil retains the title as largest oil and gas company in the world. The rankings' prelude indicates that researchers equally-weighted measures of revenue, profits, assets and market value to name the 25 biggest players in the global energy industry. Last week, Exxon became one of only five oil majors to remain a part of the Fortune 500 list.
The recent rebound in the price of oil has caused the prices of all five supermajor oil & gas companies to rise sharply. The average price increase of the group in the last 13 weeks has been 9.07%. However, only Exxon and Chevron (NYSE:CVX), have achieved a positive return in the last 52 weeks (including dividend), as shown in the table below.
Exxon has shown the best performance in the last 52 weeks among the supermajors, returning 11.54%. Moreover, XOM's close price of $91.17 June 22, is next to its 52 weeks high of $91.64. Since the beginning of the year, XOM's stock is already up 17% while the S&P 500 Index has increased 2.0%, and the Nasdaq Composite Index has lost 3.5%. However, since the beginning of 2012, XOM's stock has gained only 7.6%. In this period, the S&P 500 Index has increased 65.8%, and the Nasdaq Composite Index has risen 85.5%. According to TipRanks, the average target price of the top analysts is at $95.33, an upside of 4.6% from its June 22 close price, however, in my opinion, shares could go higher.
XOM Daily Chart
XOM Weekly Chart
Charts: TradeStation Group, Inc.
Increasing oil prices will benefit Exxon's upstream (exploration and production) operations. Exxon's upstream earnings have fallen sharply in the last few quarters due the crash in oil prices, as shown in the chart below.
Source: company reports
In the table below, I have put together the average oil realization prices for Exxon U.S and Non-U.S., and the discount to the benchmarks for the last six quarters. I also calculated the expected realization price for the current quarter based on the average oil prices thus far in the current quarter and assuming a discount rate equal to the average discount in the five previous quarters. According to my calculation, Exxon's oil realization price in the U.S. in the current quarter would be about $40.54 per barrel, a 49.5% higher than in the previous quarter, and the realization price Non-U.S. would be about $41.37 per barrel, a 44.3% greater than in the prior quarter. As I see it, such a significant oil realization prices should translate to considerable upstream earnings in the second quarter.
Data: company's reports, *2Q16 thus far for the quarter
Dividend and Share Repurchase
Exxon has increased its annual dividend payment to shareholders for 33 consecutive years. Even during the global economic crisis of the years 2008-2009, Exxon continued to grow its dividend. The current dividend yield is pretty high at 3.29%, and the payout ratio is at 94%. The current yield is historically high, which indicates that the stock is undervalued, according to some dividend assessment theories. The annual rate of dividend growth over the past three years was pretty high at 9.7%, over the past five years was also high at 10.6%, and over the last ten years was also high at 9.7%.
During the first quarter of 2016, Exxon Mobil Corporation purchased 9 million shares of its common stock for the treasury at a gross cost of $726 million. These shares were acquired to offset dilution in conjunction with the company's benefit plans and programs. According to the company, it will continue to acquire shares to offset dilution in conjunction with its benefit plans and programs, but does not currently plan on making purchases to reduce shares outstanding.
According to Portfolio123's "Balanced" ranking system, XOM's stock is ranked first among all 51 energy companies with a market cap greater than $12 billion. The 20 top-ranked energy companies according to the ranking system are shown in the table below:
The "Balanced" ranking system is quite complex, and it is taking into account many factors like; EPS consistency, technical analysis, valuation, industry rank, and industry leadership, as shown in the Portfolio123's chart below.
Back-testing over sixteen years has proved that this ranking system is very useful.
There are continuing signs of improving oil fundamentals which will benefit Exxon along other supermajor oil & gas companies. According to my calculation, Exxon's oil realization price will rise almost 50% in the current quarter compared to the previous quarter. I believe that such a significant oil realization prices increase should translate to considerable upstream earnings in the second quarter. While waiting for a continued recovery in the price of oil, investors can enjoy the generous dividend yielding 3.29% a year. The company has a long record of 33 years of continued raising its dividend. Even during the global economic crisis of the years 2008-2009, Exxon continued to increase its dividend. The average target price of the top analysts is at $95.33, an upside of 4.6% from its June 22 close price, however, in my opinion, shares could go higher.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in XOM over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.