By Daniel Green
Exxon Mobil (XOM) the U.S. leader in natural gas, has been holding its own even with oil and natural gas prices falling. Many energy companies have been trading lower as of late based on the strangle hold the European effect is having on growth worldwide. But Exxon Mobil has positioned itself for the long run and this is one reason it's only trading off 10% from its 52-week high. The stock has held up remarkably well given that Chesapeake (CHK) has dropped some 59% from its high, Devon (DVN) has lost some 25% of its market value and the list goes on with regards to energy companies losing market value. Let's face it. The market is tough right now and a person really needs to think about stability and future potential.
Exporting Natural Gas as a Solution
Earlier today, CEO Rex Tillerson of Exxon Mobil announced that the company has started to explore the possibility of exporting natural gas from North America, primarily from the Gulf of Mexico and Western Canada or Alaska. Although he was non committal in exactly which location it might first evaluate. Exxon Mobil is in early planning stages of proposing to build a liquefaction terminal in order to turn natural gas into liquids. The liquids can then be shipped by boat to Asia and elsewhere. Exxon Mobil already exports natural gas liquids to 19 countries and is extracting natural gas in 31 countries around the world. Exxon Mobil currently has a liquefaction facility in Qatar as well as the Adriatic Sea and South Hook in the U.K. In addition, there are also a regasification stations located near Sabine Pass and Qatar. Exxon Mobil also has facilities being constructed in Japan, China, Australia and Papa New Guinea.
Exxon Mobil is following the lead of smaller more independent companies in the U.S. like rival Cheniere Energy (LNG) to export natural gas liquids. Cheniere has already obtained the necessary permits to construct a liquefaction plant near Sabine Pass and export natural gas liquids. Proponents believe the current administration will prohibit or delay exporting natural gas liquids without free trade agreements signed in advance. Sempra Energy (SRE) and Dominion Resources (D) have partnered with two Japanese companies in a joint venture and are currently in the application stage and waiting for final approval from the U.S. Department of Energy. The U.S. Department of Energy has stated that it will not review permits for natural gas liquid exportation until late summer. Exxon Mobil may very well be positioning itself to lobby hard for natural gas liquid exportation.
Opponents of exporting believe that exporting natural gas liquids would increase hydraulic fracturing, which is a process in which hydraulic fluids are pumped into the ground in order to extract the natural gas liquids. Critics also believe that exporting would lead to price increases here in North America as well.
I believe that Exxon Mobil is a bargain at this particular time in the market at $80 per share. As stated early, Exxon Mobil is trading at about 10% off its 52-week high of $88 per share. Analysts believe it could also top out $95 per share by years end. Exxon Mobil has been a proven winner year-over-year with revenues growing almost 9%, and it offers annual earnings of over $8 per share as well as a dividend of $2.28 per share.
I think that Exxon Mobil is in a position to acquire Chesapeake Energy, if there is a true interest by CEO Aubrey McClendon to sell off assets based on the arrival of Carl Icahn. Chesapeake has to sell assets and that includes large tracts of land and thousands of drilling permits in order to meet cash requirements of bankers and capital firms. Either way, I think Exxon Mobil with almost $20 billion in cash can bolster onshore drilling by purchasing assets from Chesapeake. The purchase by Exxon Mobil would also bolster annual growth rates, which maybe the only portion of business that dragging at this point. New land and drilling rights acquired from Chesapeake would give the stock a boost as well by attracting more growth investors, besides the traditional dividend investor.
The future for Exxon Mobil is stable and that is reflected in the stock's little downward movement during a market that has chewed up other energy companies. Exxon Mobil is in excellent position to take advantage of natural gas liquids around the world in future years. I also think that Exxon Mobil is in prime position to export more natural gas liquids, not only in the U.S. but worldwide. The experience that Exxon Mobil is gaining with liquefaction systems in Qatar, Italy and the U.K. bodes well for the company when the U.S. decides on exporting.
Overall, it is good to be the king of natural gas even when the price is falling. The future energy needs of the world will eventually necessitate companies to be innovative in their research and development as well as explore all options to maximize profits. At this point, natural gas is the best bet for U.S. energy independence and innovation. Research and development will be key going forward. If energy costs keep hampering big transportation and trucking companies, these companies will continue to explore natural gas fueling stations along the U.S. interstate highway system. For this idea alone it is worth buying Exxon Mobil, the world's leading producer of natural gas.