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Exxon Receives Extension, Stock Seesaws

Zacks Equity Research

Oil giant ExxonMobil Corporation (XOM) saw mixed investor reaction to the extension that its affiliates have received on deep-water licenses, offshore Madagascar. While the stock price moved up 133% to touch $92.59 on the day the extension was announced, it surprised with a 0.7% drop in the next trading session on Thursday but picked up 0.8% on Friday to close at $92.73 per share.

The extension has enabled ExxonMobil to resume exploration activities on the Ampasindava, Majunga and Cap St. Andre licenses after a four-year gap. The extensions to all three production sharing contract licenses were formally announced in Jul 2013.  

As a ground work for deepwater drilling, the affiliates propose to restart exploration work and environmental appraisal for shore-based and offshore operations.

Exxon Mobil retains the operatorship of all three licenses. It holds a 70% interest in the Ampasindava PSC license, with Sterling Energy holding the remaining 30%.

ExxonMobil has a 50% interest in the Majunga license. The other partners in the license are BG International, PVEP and SK Innovation, holding 30%, 10% and 10%, respectively. In the Cap St. Andre license, ExxonMobil solely holds 100%.

Currently, Madagascar has no proven offshore hydrocarbon reserve. However, it shares a maritime boundary with Mozambique – a gas-rich region.

During the third quarter, ExxonMobil beat the Zacks Consensus Estimate. The beat came at a time when a sharp drop in refinery utilization rates hurt the fortunes of refiners. Exxon’s outperformance was backed by higher liquid and natural gas prices.

ExxonMobil carries a Zacks Rank #3 (Hold). However, there are other sector stocks – SM Energy Company (SM) and Abraxas Petroleum Corp. (AXAS) – that hold a Zacks Rank #1 (Strong Buy) and are worth buying now. SandRidge Energy, Inc. (SD) with a Zacks Rank #2 (Buy) also offers value.

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