Exxon Balanced on Risks & Rewards


On Jun 5, 2014, we issued an updated research report on ExxonMobil Corporation (XOM), the world’s largest publicly traded oil company. ExxonMobil’s strength lies in its balanced operations, strong financial flexibility and continuous improvement in efficiency and cost control.

ExxonMobil is fairly active in its investment program. The company plans to spend about $185 billion over the next five years, up 29% from the last five-year period. The capex covers as many as 21 important oil and gas projects currently under the anvil, which are estimated to produce over 1 million net oil-equivalent barrels per day by 2016. It includes the Kearl Oil Sands development project in Canada, four projects in West Africa and Kashagan Phase 1 in Kazakhstan.

ExxonMobil is also engaged in a large liquefied natural gas project in Papua New Guinea, which began deliveries ahead of schedule in Apr 2014. The company also discovered oil in Vaca Muerta play in Argentina and will unearth more oil from the development of Hebron oil field offshore the Canadian province of Newfoundland and Labrador. The development will help in recovering over 700 million barrels of oil and the platform is expected to yield its first oil toward the end of 2017.

The company boasts diversified operations across the world and has several new projects that are expected to come online through 2014. ExxonMobil’s main areas of focus for the coming years include the U.S., Canada, Kazakhstan, West Africa, Australia, Russia, Angola and Iraq, which will likely yield new volumes. On the exploration front, the company will concentrate on unconventional natural gas across North America as well as offshore regions, including the Gulf of Mexico. Notably, Exxon was successful in the exploration of a well in offshore Tanzania, where it came across a massive amount of recoverable gas of high quality.

ExxonMobil reported better-than-expected earnings on the back of higher natural gas prices. However, this was partly offset by decreased revenues and lower refining margins. In the first quarter, ExxonMobil's refinery throughput averaged 4.5 million barrels per day (:MMBPD), down 1.5% from the year-earlier level of 4.6 MMBPD. As a result, the segment recorded a profit of $813 million against $1.5 billion in the year-ago quarter.

Additionally, due to its integrated functions, ExxonMobil is susceptible to downside risk from any weakness in the global economy.

Key Picks in the Sector

ExxonMobil has a Zacks Rank #3 (Hold). Currently, we prefer to remain at the periphery regarding the stock. However, better-ranked players in the energy sector like Magellan Midstream Partners LP (MMP), Ultra Petroleum Corp. (UPL)  and Encana Corp. (ECA), all sporting a Zacks Rank #1 (Strong Buy), are worth reckoning.

Read the Full Research Report on MMP
Read the Full Research Report on XOM
Read the Full Research Report on ECA
Read the Full Research Report on UPL

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