Obama-Putin rift no barrier to Exxon's Russia ambitions

The deepening alliance between Exxon Mobil (XOM) and Rosneft (RNFTF) shows the troubled relationship between the U.S. and Russian governments is no bar to America’s most valuable energy company investing billions in Russia.

The joint venture expects to start its first Arctic well this year, targeting a deposit that may hold more oil than Norway’s North Sea; it also plans to frack shale fields in Siberia, sink a deepwater well in the Black Sea and build a natural gas export terminal in Russia’s Far East.

Diplomatic spats are unlikely to derail business relationships with Russia, especially when the country holds the world's largest oil reserves and XOM needs to find new reserves after three straight years of declining output.

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Comments (16)
  • Michael Fitzsimmons
    , contributor
    Comments (11659) | Send Message
    As a shareholder, I sure hope this works out well for XOM in the long run....
    2 Jan 2014, 05:58 PM Reply Like
  • Bob Carl
    , contributor
    Comments (341) | Send Message
    Although I am long and bullish on XOM, I think Lee Raymond was right to limit expose to Russia and I do question Rex Tillerson's trust in Putin's dictatorship. Of course, Tillerson ran XOM's Russian operations, knows Putin, and, hopefully, is far better informed than I am on the nuances of Russian politics.


    This I know: if for any reason Mr. Putin ever wanted to essentially give XOM's expanding Russian operations to one of his cronies, he could, and XOM shareholders would be left with little return on their investment. Fortunately, XOM is so huge and financially strong, that it would be able to withstand such an expropriation. Not so fortunate, XOM shareholders will still take a big hit.


    In the long run, Tillerson's legacy as XOM's Chairman, President and CEO will be more determined by the long-term success or failure (via expropriation) of his Russian adventure than by paying a huge premium for XTO at a time immediately preceding a major decline in natural gas prices.
    2 Jan 2014, 06:07 PM Reply Like
  • Michael Fitzsimmons
    , contributor
    Comments (11659) | Send Message
    Excellent comment Bob and I agree wholeheartedly.
    2 Jan 2014, 08:01 PM Reply Like
  • bertkummel
    , contributor
    Comments (30) | Send Message
    XOM is very smart but is it smarter than BP?
    2 Jan 2014, 06:08 PM Reply Like
  • Michael Fitzsimmons
    , contributor
    Comments (11659) | Send Message
    Considering BP's behavior in the Gulf of Mexico, I can answer your question with no hesitation: YES.
    2 Jan 2014, 08:00 PM Reply Like
  • Bazzasday
    , contributor
    Comments (18) | Send Message
    Having just invested in XOM for the first time ( Last week) , the more positive news that flows through hiking the share the price the better as far as i am concerned, keep it coming XOM !!
    2 Jan 2014, 08:14 PM Reply Like
  • User 195396
    , contributor
    Comments (447) | Send Message
    I think XOM is regretting the day they got involved with the Kashagan project in Kazakhstan-it is a train wreck and COP saw the light and got the hell out:


    2 Jan 2014, 08:58 PM Reply Like
  • sl100
    , contributor
    Comments (112) | Send Message
    Why would someone buy XOM at these levels is beyond me I see a lot of pump on XOM. lot of articles seem to be paid to do this just like cramer and CNBC. There are so many negatives for XOM at these price levels good advice would be to ask investors to wait for $90 before buying.


    -- 450B large mkt cap with 22B in Debt.
    -- No reserve replacement done for the past 3 years, needs to issue debt to grow but assets are expensive now due to competition from India and China and other nations.
    -- Need to issue more debt to buy back shares which does not make much prudence since the interest rates are now > 3% on treasure while debt would be more expensive.
    -- Last year revn decline 14% while expect growth is just 2-4% for 2014.
    -- Even if some is buy this for div yield which far less than treasure with more risk than treasury bonds 2.2% div vs. 3% 10 year treasure.
    -- lower oil price, Abundance of Oil as many countries like Libya, Iran, Iraq etc are coming on line. Also shale production in US is taking off so more inventory coming online.
    -- South America is now taken over by Chinese companies, Equador, Venezuela, Brazil etc. Basically more oil coming online at cheaper prices.
    -- XOM is not able to get reserves cheap as use to do in the 90's basically it is very hard for XOM to grow and acquiring assets is getting very difficult, it use to be easy before china, india, brazil were growing, Also due to rise in commodity prices no one is will to sell these assets.


    With so many negatives there far better investments than XOM. Do not short the stock as the pump mode is in full swing.
    2 Jan 2014, 09:21 PM Reply Like
  • Bob Carl
    , contributor
    Comments (341) | Send Message
    My answers to your question are:


    (1) Reasonable people differ on valuation. You make valid points.
    (2) The past is not necessarily the future. XOM has spent a lot of money on cap ex the last 5 years. Now their cap-ex should moderate freeing up significant cash flows to boost the dividend and continue share repurchases.
    (3) XOM is not heavily leveraged relative to current cash flow, let alone future cash flows, so if it wishes to continue borrowing to fund share repurchases, it has ample flexibility. And it can borrow short term and swap the maturities of its debt for far less than 3%.
    (4) XOM trades at a P/E of 13.5. The S&P 500 index trades at a p/e of 17.29. I think XOM is a better, less risky stock than the average S&P 500 company by a wide margin.
    (5) The Chinese are not oil geniuses. Look at their misadventures in Canadian oil stocks. Besides, Latin America, sans Mexico, is not a priority for XOM.
    (6) XOM has a long history of being a disciplined allocator of capital, and while the past does not necessarily predict the future, I don't think that will change.
    (7) XOM has the world's largest oil refining and marketing network. It also runs a huge commodity chemical operation. This vertical integration, a distant legacy of John D. Rockefeller, operates as a counterbalance to falling crude prices as refining margins decline at a much slower rate. I have always liked this aspect of an investment in XOM.
    2 Jan 2014, 10:52 PM Reply Like
  • Michael Fitzsimmons
    , contributor
    Comments (11659) | Send Message
    s100: no reserve replacement in the last 5 years? With all due respect, that is simply a false statement. Exxon has replaced more than 100% of production for 19 straight years. In 2012, reserves additions of 1.8 billion oil-equivalent barrels were 115 percent of 2012 production.
    Liquids replaced at a ratio of 174%, bringing total proved reserves base to 51% liquids:


    3 Jan 2014, 11:12 AM Reply Like
  • dougtrvl888
    , contributor
    Comments (146) | Send Message
    I would not buy Exxon now or at these levels. I think it is a great company that has in the past brought shareholders big gains over many years. But today at it's valuation level
    it is not worthy of consideration. Sure it might grow at 5-6 percent a year including
    dividends. For me this would be a waste of time.
    BP is a much better choice,l but
    Rosneft is even better, much better in my opinion as a long term oil investment for the next
    10-20 years. It's valuation is dirt cheap for many reasons, one that Russia had one of
    the worst performing stock markets in 2013, but of course also because Russia & Putin
    are hated by all right now.
    Rosneft is now the largest oil producing company in the world after it's recent acquisition
    from BP. BP also owns about 20 percent of the company. Also Exxon has signed many
    exploration deals with Rosneft. Rosneft has a 4.5 yield today, expected to be 6 percent
    in the next year due to the govts demand that Russian companies raise their payouts
    closer to US & european companies, as they payout typically 20 percent in net profit
    In dividend, & this is expected tomgo up to 35 percent of net profit in 1-2 years.
    (Gazprom is also a screaming buy).
    Will initiate a position in Rosneft in the next 2 weeks, & in 3 years we shall see who
    has the bigger percentage gains. Long Rosneft.
    5 Jan 2014, 01:36 PM Reply Like
  • sl100
    , contributor
    Comments (112) | Send Message
    Agree with some of your points but here is my reply:
    -- Capex spending they did did not generate the results they estimated most of the projects had cost over runs. Even with those spending levels they have not replaced the reservers they had. So growth is very limit the company itself claims about 2-4% growth.
    -- PE is deceptive and with expected growth of 2-4% 13.5 is very high. With Div yield of 2.4% which much less than many other companies in the same space with better growth rates.
    -- XOM is slow down the share purchase last qtr, they need borrow at higer rates now than what they could before I think they can now borrow at about 4%, rates have gone up dramatically from last year 1.6% treasury to 3% now, that is massive move.
    -- Chinese have the cash, but if see what they are doing they have gone from amost 0 to now pretty much a big chunk in South America, Europe, Africa and some extent in Middle east. Google it and you see that they control now 90% of Ecuador, major chunk in Venezuela and signing more deals, many in Africa, and Europe, while XOM has not moved in many years. Its expensive now for because of china and this is the reason it is difficult fro XOM, easy time is over unlike the 80's and 90's they were the only major player along with few western firms no longer this is true.
    -- XOM needs oil $105 for them grow even at 2-4% with so much oil coming online pricing power is not there.
    -- I understand they have many business but at these levels this not a good entry point as it has grown so big to grow future(450 Billion for any firm is pretty big). so the PE are high give the growth conditions.
    -- Last qtr net sellers by insitutions, but ETF bough in because they need to no matter the price. There was only one fund which bought 75M shares even with this net share sale was 47Million so wondering who is going to buy at these levels in the coming qtrs. give what growth rates the company has. I will wait for 90 or below to enter, not here.


    Better advise it tell investors to wait for better entry point not here. Also what happens when the ETF's get sold XOM shares will also be forced to sell which is a big risk given the mkt has gone up so much in such a short time. Specifically XOM is gone up like $14-$15 in 2 months buying here is risky, needs to pullback 7-10 % and settledown for better entry point.
    2 Jan 2014, 11:50 PM Reply Like
  • Bob Carl
    , contributor
    Comments (341) | Send Message
    I agree XOM is overextended. I buy it regularly in the DRIP plan, but I too would rather buy it at 90 and if it falls to that will be buying in the plan at that level but also, unfortunately, in the high 90s too. And so it goes.
    3 Jan 2014, 12:03 AM Reply Like
  • geologist
    , contributor
    Comments (591) | Send Message
    The story here, as I see it, is that Exxon and Putin are not cozy friends with Obama. Obama's disdain for one of America's most successful companies is well known. Obama openly bashed Exxon in order to get votes during his election. His disdain for Exxon is akin to his dislike of Putin. Where is the great communicator and problem resolver when it comes to Russia-Putin?


    Obama acts like a pouty school kid when dealing with Putin-Russia. He should use his reported great communication and Nobel Peace prize skills when dealing with Russia. Same with his disdain for Exxon. It's a sad situation when our leader trash talks a great American company as Exxon for his own personal gain. Regards.
    3 Jan 2014, 03:46 AM Reply Like
  • solar financier
    , contributor
    Comments (115) | Send Message
    I am long XOM and seeking diversification with renewable energy stocks like SCTY which is focused on principally distributed generation of electricity with solar PV.
    3 Jan 2014, 06:00 AM Reply Like
  • citidel1968
    , contributor
    Comments (4) | Send Message
    My Mother has owned Exxon 4 decades. I have told her to sell many times but to no avail. She has proved me wrong as I have seen a 100% gain in her portfolio. I guess only the wise hold on to Exxon leaveing everyone else dropping the ball.
    24 Jan 2014, 04:55 PM Reply Like
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