Although there are many reasons to support the idea that Exxon Mobil (XOM) is in a holding pattern, there also exist several reasons to take advantage of an increased stock ownership of the oil and gas producer, as its current financial circumstances will, in my opinion, prove to be profitable for the remainder of 2012.
Oil and gas prices continue to rise. The price of gas alone has seen a reported 20% rise since December 2011, as it is currently selling at approximately $3.90 per gallon. As a result of this increase, oil companies such as Exxon have seen a steady increase in share price. In December, Exxon was selling at around $74 per share. As gas prices continued to rise through the winter, Exxon saw its share price continue to rise to its current asking price of $84. As a result of the increase in gas prices, the Obama administration has begun to take steps in an attempt to curb prices. The government's plan, as recently announced, intends to increase funding to the CFTC's oil futures staff by $52 million.
The idea behind this legislation is to provide the government with further tools to investigate speculators who drive up prices by creating a false perception of an oil shortage and then profit off of the consumer fear that is generated.
Despite the United States government's plan to place a cap on skyrocketing oil prices, it is my opinion that Exxon Mobil has placed itself in a position to offset any domestic decrease in demand with its foreign acquisitions and the growing global wide demand. As a result, Exxon Mobil is set to provide investors with large-scale dividend payouts for 2012.
2011 was a banner year for Exxon, as it reported its upstream earnings (earnings generated from gas and oil production) had risen to $34.4 billion, a 26.5% increase from 2010. Overall, Exxon reported a 24.2% increase in earnings.
2012 looks to be a further year of expansion for Exxon, as it was able to come to terms with Russian oil producer Rosneft (ROSN). The agreement allows Exxon to drill in Russian's offshore oil fields in the Kara Sea. Although the reported cost of the initial exploration plans is expected to top $3.2 billion, projections have shown that the oil fields contain an estimated 36 billion barrels of oil reserves.
This deal is similar to the one that was forged with rival BP (BP), which was looking for ways to rebound from its disastrous 2010 oil spill. However, despite the urging of the deal from the Russian government, BP became involved in an intense legal battle with other Russian Investors. As a result, the deal was blocked, and BP lost out on the potentially lucrative deal that Exxon was then able to capitalize on.
Royal Dutch Shell (RDS.A) has also gotten itself involved in the Russian Oil industry; however it was compelled by the Kremlin to sell a majority of its stake in the Sakhalin Island project, which it had invested $20 billion in. Meanwhile, Chevron (CVX) has only begun its talks with Russian officials in staking its claim to the Russian Oil fields.
Based on the current plans of Exxon and the inability of its competitors to further its foothold in the Russian Oil Industry, which is reported to have surpassed Saudi Arabia in oil production, Exxon has positioned itself to profit substantially from its stake in the Russian Arctic oil fields. As a result, it should see a substantial increase in its share price for the remainder of 2012.
Exxon's position should be further improved with the anticipated global wide rise in oil demand for 2012. The IEA has projected a global rise oil of 800,000 barrels per day. Although IEA has stated that this projection is a significant decrease in its original projections of a 1.2 million barrel per day increase, any increase in production should continue to prove profitable for Exxon.
Exxon's position should further be supported by the Indian oil market that is expected to see 7% growth annually for the next 5 years. With the anticipated growth in Indian oil market, it has been projected that India will rely on foreign exports of oil in the amount of 3.5 million barrels per day.
With Exxon's presence in the Russian oil fields, it should be able to compete with other oil companies in supplying its fair share of the increase in Indian oil demand. As a result, it should benefit from the continued growth in the Indian market.
Not to be discounted, China also saw a reported 3.4% increase in oil demand in March, where its daily oil demand rose to 9.46 million barrels. Although the projections are lower than originally forecast, the global increase in demand is still prevalent in the oil industry. As a result of its improved global presence that should improve its position in the growing Chinese and Indian economies, and the continued rise in gas prices at both domestic and foreign pumps, Exxon will once again report substantial growth for the 2012 fiscal year. As a result, Exxon is currently selling at a discount to its fair market value.