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Exxon Mobil: I Don't Expect Them To Be Someone They Are Not

Jun. 08, 2020 11:06 PM ETExxon Mobil Corporation (XOM) Stock61 Comments
DT Analysis profile picture
DT Analysis


  • The management of Exxon Mobil has been receiving quite frequent criticism that their actions are unfriendly to their shareholders.
  • Two of the primary areas are their strategy of sticking to fossil fuels as well as maintaining a high capital expenditure budget throughout this downturn.
  • Focusing on fossil fuels does not mean that they are shareholder-unfriendly as they still present a clear investment case and investors can assess whether it suits their individual beliefs.
  • I see three broad paths for oil and gas prices in the future and regardless of which one eventuates, they should still see adequate demand for their new oil and gas production.
  • At the end of the day, they cannot be everything to everyone and thus investors should seek investments that align with their views; meanwhile, I continue maintaining my bullish rating.


The recent years have seen the management of Exxon Mobil (NYSE:XOM) receiving criticism that their actions are unfriendly to their shareholders, such as those recently expressed by one of my fellow Seeking Alpha contributors. Whilst I certainly respect their perspective and the points made, I nonetheless still believe that this largely stems from differing subjective perspectives coupled with a desire for them to be someone they are not. Instead of simply just arguing that their efforts to preserve their cherished dividend is adequate evidence of them being shareholder-friendly, I will instead share my perspective on two other important areas of the current discussion.

Environmental Sustainability and Renewable Energy

The first area where they seem to be receiving ever-increasing criticism is their continued focus on their fossil fuel investments whilst the world is transitioning to renewable energy. Although I believe that this transition is certainly underway, it nonetheless still seems reasonable to expect that demand for their fossil fuels will remain at a material extent for several more decades, as the two graphs included below display.

Future energy demand

Image Source: BP Energy Outlook 2019.

The main point that I wish to make is not that I know exactly what the future holds for fossil fuels, but rather that their current decision should not be considered unfriendly to their shareholders. No one knows for certain whether by transitioning quickly in the short term or waiting until further down the road is of a higher intrinsic value to their shareholders and thus each investor is entitled to their own respective opinions.

Ultimately, only time will prove whether their current strategy is optimal. However, it should be remembered that at least they are still providing the market with a clear investment case. Just because an investor may disagree with their strategy does not mean that these actions are inherently

This article was written by

DT Analysis profile picture
I am no longer active, as I am taking a hiatus from finance to pursue business ventures in other sectors.  I hope that my analysis was helpful to investors across the years, thank you.

Analyst’s Disclosure: I am/we are long XOM. 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.

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Comments (61)

Tuco's Child profile picture
Every renewable requires fossil fuel input, from cradle to grave.

RDS and BP are doing a phony greenwash.
What's this guy from Motley Fool talking about?? The dividend payout ration isn't 51%, is it???

Things are looking up for Exxon
The recent dramatic drop in oil prices had a lot of people concerned about the dividend of Exxon (NYSE:XOM), which had a yield of 6.50% as of Wednesday. But rest assured, it remains safe.

Exxon has been paying a dividend for 37 years and raising it for the past 13. In its recent first-quarter report, the company reiterated it will preserve cash for the dividend. It has scared some investors that the company didn't raise its dividend as it usually does in April, keeping it at $0.87 a share. But that doesn't mean a dividend raise later in the year isn't forthcoming, especially now that the price of crude has more than doubled in the past few weeks.

With a payout ratio of 51.47% based on cash flow, the company will easily cover its dividend. It also doesn't hurt that Exxon's stock has bounced back to $51.19 as of Wednesday, well off its 52-week high of $77.93 but about 70% higher than its 52-week low, set in mid-April.
Carson7 profile picture
NEE rules.
Carson7 profile picture
Cash flow does not cover the dividends now. Will be like this for years. Uninvestable.
Green energy is nuts. Hopeless. See Michael Moore's film.
It's 39 minutes. Not watching it . Could you give a 50-word summary?
@MassSpec Guy, Renewables are not displacing fossil fuel consumption in the US or world wide. Just manufacturing solar and wind equipment consumes nearly as large an amount of energy as they will produce during their life time of operating. Biomass makes up the largest portion of renewables (not counting hydro), and it causes vast acreages of trees to be cut. Trees take many decades to grow back. Natural gas has to back up all solar and wind facilities.

Michael Moore's conclusion is to limit human population growth. Good luck with that. There's no real risk to the continues use of fossil fuels in the modern world for the foreseeable future.

If you are at all interested, find a time when you can watch the film. Within minutes you will want to keep watching. It flows fast. Stays interesting.
Thx for the link @HaroldL. You know a program has to stink when M Moore does a film on it. Didn't expect that position from him.
Why elevate special interest groups who buy some shares of XOM to the level of being thought of as shareholders? The frequency of their criticisms is not that relevant. Just ignore them.
The problem is not that XOM concentrates on fossil fuels, nor that capital investment is in itself a bad thing. It is that XOM is fixated on borrowing and ramping up production is the face of falling oil prices recently and, despite some likely recovery, the prospect of falling longer term. Environmental legislation and technological efficiencies will reduce carbon combustion and therefore demand for fossil fuels. Meanwhile, countries and companies with large reserves will ramp up production and dump it on the market in hopes of realizing some value while they still can.

All you need to do is compare the chart of the share price of CVX with that of XOM. You will then see which is the better-managed company, in the face of falling oil prices. I hold a few of the integrated majors, including XOM in a long-term position because I have, unwisely, not wanted to take a tax hit on disposition. I expect some recovery, but the idea that XOM is a suitable investment vehicle, as distinct from a trading vehicle for skilful and agile traders, in my view verges on delusion
Sugar Charlie, XOM has many projects that take a long time (5+ years) to take from discovery to production. Oil and gas is a cyclical business. If they wait for the market to recover before progressing a project they will often miss the peak prices that would occur during the cycle peak.

XOM also realizes that no country or company can survive long term with oil prices below $50/bbl. we have already seen a rebound of prices. borrowing, either for capital or for a dividend are not that troubling as long as it doesn’t occur for too many quarters.

There is no scientific, engineering, or economic consensus on what to do about climate change. So allowing lying , greedy, and stupid politicians to decide how to handle climate change is probably the most delusional thing we can do.
On your first paragraph, my issue is not with timing of investment in higher production; it is with scale and likely profitability. I do expect some price recovery from present levels,-- I very much hope so,-- but medium and longer term I not believe that scaling up output will be profitable, or at least sufficiently profitable to justify scaling up investment in production.

The issue really is pricing of oil and, to some extent of gas, going forward. I don't think it matters whether you or I think that climate change is wholly or partly, or to what extent, man-made or whether it is caused by carbon combustion. The fact remains that public policy, and the legislation that goes with it, are increasingly based on the view that it is, and will, in my view, therefore increasingly depress demand. And, of course, technological change will continue to increase efficiencies and depress demand. Meanwhile, countries and companies with reserves, especially large reserves, will produce as much as possible to realize value while they can. In other words, both supply and demand will be unfavourable to pricing. Of course there will always be demand for petroleum, but this does not by itself mean that the that the supply -demand balance will be favourable to producers.

Anyone who holds, or is considering, XOM should compare its price chart with that of CVX and ask why XOM has done so poorly in comparison for an extended period. I say this though I consider the sector as a whole to be uninvestable in the longer term, though of course it is tradeable for people sufficiently agile and skilful,-- and lucky.

Good luck!
If one wants to invest in an oil company that no longer wants to be called an oil company - buy Shell. XOM is an oil company and intends to remain that way for the foreseeable. Make your choice and good luck...
Poldarkfan profile picture
I lost interest at the first "whilst". Looky here son. We talkin' 'bout an oil company. We don't cotton to words like "whilst".
Your a Poldark fan. Whilst is commonly used in England, but not in Cornwall?
Investors have a wide choice of companies, from Agriculture to Zoos. Petroleum is an expensive complex business and oil companies require a range of professional skills. An integrated major global IOC like Exxon with a focus on safety and high standards of operation has to tread carefully to please unions, envrionmental activists and politicians wanting every cent in bonuses, royalties, profit oil and associated gas for power generation.
The world is not "transitioning to renewable energy". The rate of renewable energy build does not even keep up with the annual increase in demand for energy. Fossil fuel consumption in all categories is higher every year than the previous year.

By any objective measurement, there is no renewable energy transition. Any article that starts out with that as a premise is deeply flawed.

Additionally, look at the real world effect of adding "renewable" energy to a reliable grid. Germany now has the second most expensive electricity in Europe. Their CO2 emissions still exceed 450 grams of CO2 per KWHr of electricity generated. They've squandered hundreds of billions of Euros and by any meaningful measurement, the transition is an abysmal failure.

Of course, if you measure the success by windmills and solar panels built, they're a big success, but if your measurement is actual CO2 emissions, then they have accomplished nothing other than subjecting their citizenry to punishing electricity prices.

Meanwhile, France and Ontario continue to emit less than 100 grams of CO2 per KWHr generated, and charge their citizens less than half as much for electricity as Germany.

So, why apologize for Exxon's lack of renewable fervor? Renewable fervor is nothing but foolishness, egged on by propaganda from subsidy sucking profiteers.
geologist profile picture
If your numbers regarding renewables are correct, you make a good point. How come we do not see these numbers in news articles. We should.

Thanks for posting this information about renewables in Germany. Regards.
Geologist, Walter Cronkite is dead and so is true news. The media now reports their opinions and often hide the true facts
Think back. Have you ever heard any numbers about grams of CO2 per KWHr generated? That's the carbon intensity per KWHr, CIPK.

All the media blather is about windmills built, or windmill capacity built. They never report meaningful numbers regarding actual CO2 output.

As to why that is, I can speculate, but I don't **know** with certainty. What it looks like is a well run propaganda campaign, with paid researchers (M. Jacobson at Standford, e.g.), talking heads from "green" NGOs ready to jump in front of a camera when the media calls, and various bought politicians

Aubrey McClendon of Chesapeake Gas gave the Sierra Club $25M some years ago. There was a big scandal when folks noticed, but Sierra Club didn't return the money. Most fossil companies "launder" their funding of "Green" NGOs through at least two layers of charitable foundations. McClendon's mistake was in not asking how to properly hide his donation...

Chancellor Gerhard Schroeder, who created the plan Germany has been executing, took an extremely well paying job at Gazprom immediately after leaving office. He was instrumental in getting a gas pipeline driven from Russia to Germany.

Gas generators are great (though inefficient) at compensating for the intermittency of wind and solar. If you have lots of wind and solar, and you want your grid to be reliable, you will burn a lot of gas.

In the real world, building wind and solar has never reduced CO2 emissions any more than just switching from coal to gas would do, because in the real world, that's pretty much what they're doing.
You make a good point about XOM being what XOM is.

If you think the future for oil Majors is to transition away from Fossil Fuels - invest in Shell. If you think the future for oil Majors is to double down on Fossil Fuels - invest in XOM.

While altering your existing oil Major investments can certainly cause you some Capital gains grief, we can't expect companies to invest based on a particular individual investor forecast of the business.

Or buy both?
I'm in agreement with your thesis, also good to read an article wherein the author actually invests in his ideas.
With oil/energy in a bear since ~2016 many of the majors had already reduced investments...now catastrophically. The outcome can only lead to shortfalls in the next few years, after all: the cure for cheap prices- is cheap prices. Long Texas.
geologist profile picture
Thanks for the nice article which you have defined why Exxon is not like other large E&P's. And that Exxon is on a different tract versus other majors and for good reason. Exxon's CAPEX program is driven by very important new conventional field discoveries at a perfect time since development of these new fields is best completed in a low cost environment and not during a high cost period where Field Service Companies would be in demand thus commanding higher prices.

I assume you would be bullish on Exxons share price until it gets back to where your 3 cases merge together (about $69 to $74?). So, at $52/share you are still bullish on Exxon. Again, thanks for the article. Best wishes.
Well, most shareholders don't really understand what they've bought. Might have been better for XOM to cut the dividend like RDS in order to have the resources to scoop up even more distressed assets, which would pay off handsomely down the road. But everyone wants their returns now, no matter how ridiculous the circumstances, and that short term thinking is why most people really should stick to index funds.
Ramon_13 profile picture
Nice analysis
I'm very bullish on XOM and RDS-B. Petroleum is going to be in demand for many more uses than gasoline and both companies (as well as BP and Chevron) are on the forefront in those areas. Also these companies are not ignoring alternative energy but rather investing and researching it.
I've held XOM since 1990, and every so often check to see if there is insider officer buying. Usually the answer is zero, none, nada. This past February and March saw a cluster of XOM officer buys at stupid cheap levels. XOM sells to all sides of the energy debate. If your flavor is green, they sell the feedstocks and diesel needed to build, maintain, and eventually responsibly dispose of green tech.
edaskew profile picture
Exactly my sentiments. Capex today is going to buy more production and more profitable production than capex a year ago or a year from now. Why cut more than necessary? As far as the Covid second wave, certainly it will come this fall and winter. However, even now we are not far from getting to about 10% of the population not being susceptible. That 10% was the most susceptible. By the late fall when it takes off again, it could be 20%. I figure about 15 -20% of the population won't get it anyway just because they are too smart, too disciplined, and too careful. So when it takes off again, you can multiply what was the R0 at the start of the pandemic by 0.6, and given people are being more careful not to get Covid, the flu season should be mild. In other words, the healthcare system is in no danger of being overwhelmed, and there won't be any more lock downs. Schools might get closed for the holidays at Halloween, and re-open in January. Travel, of course, won't get back to normal before next year. Overall, people are too optimistic about the overall economic impact and stock prices are going to come down, but XOM will survive and when this is all over it should take off again. I'm holding for the time being.
Perhaps the lack of 'social approval' by (seemingly) increasingly larger numbers of greener people will keep pressure on the company. I'm thinking more regulation, subsidies to alternative energy sources and various vote getting initiatives. I think this is not temporary. The oil companies seem to have become a public enemy (maybe they always were though) on a larger scale. So the game has become more risky maybe.
all been said before.
edaskew profile picture
@Uncial Yes, but it also creates a buying opportunity. What matters over the long haul isn't popularity, but earnings. As far as regulation and subsidies, etc., there's been plenty of that already. That's ultimately a drag on the economy, and there's only so much of sort of thing that the people will tolerate before they bring in the deregulation party to undo it all.

But not by me, and besides so has "all been said before.".
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