Company Overview: Exxon Mobil Corporation is engaged in energy business. The Company is engaged in the exploration, production, transportation and sale of crude oil and natural gas, and the manufacture, transportation and sale of petroleum products. The Company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and a range of specialty products. The Company's segments include Upstream, Downstream, Chemical, and Corporate and Financing. The Upstream segment operates to explore for and produce crude oil and natural gas. The Downstream operates to manufacture and sell petroleum products. The Chemical segment operates to manufacture and sell petrochemicals. The Company has exploration and development activities in projects located in the United States, Canada/South America, Europe, Africa, Asia and Australia/Oceania.


XOM Details

Exxon Mobil Corporation (NYSE: XOM) is rolling out its aggressive growth strategy that will focus on enhancing its earnings by over 100% from 2017 adjusted profit of $15 billion to $31 billion by 2025 at 2017 prices (excluding the impact of U.S. tax reform and impairments). Over many years, XOM has gained momentum through its strengths and financial capabilities, using innovation, technology and integration  with an aim to deliver long-term shareholder value and industry-leading returns. The group has been into 35 years of continued dividend growth for shareholders. In 2017, the group reported for $19.7 billion in earnings and $33.2 billion in cash flow from operations and asset sales. Its result reflected a 9% return on average capital employed. Now, for the first quarter of 2018, the group reported earnings of $4.7 billion (up 16%) with cash flow of $10 billion, which has been highest since 2014 on quarter on quarter basis. The U.S. Upstream earnings of $429 million have been positive while Papua New Guinea has resumed production (though earnings were lowered by $80 million and volumes by 25 koebd). Primarily, XOM has been benefitting from higher commodity prices, coupled with a focus on operating efficiently and strengthened portfolio.


Q1 2018 Result (Source: Company Reports)

Completes Purchase of Carcara Oil Field Interest: Exxon Mobil Corporation (NYSE: XOM) has completed the purchase of half of Equinor’s interest in the BM-S-8 block offshore Brazil, which contains part of the 2-billion-barrel, pre-salt Carcara oil field. The production from the field is expected to start in 2023 or 2024. XOM and its co-venture partners are advancing development activities, including concept selection and finalizing all remaining commercial agreements. The exploration drilling began on the Guanxuma prospect in BM-S-8 on April 25. XOM now holds a 36.5 percent interest in the BM-S-8 block and Equinor holds 36.5 percent. Petrogal Brasil and Barra Energia each hold 17 percent and 10 percent, respectively. Moreover, XOM has a 40 percent interest in the North Carcara block adjacent to BM-S-8, with co-venturers Equinor (formerly Statoil) and Petrogal Brasil. The block contains the other part of the significant Carcara field. Equinor is the operator of both Carcara North and BM-S-8.

Plans to more than double earnings potential by 2025 while addressing climate change risks: XOM has planned to more than double earnings potential by 2025 while addressing the risks of climate change through continued research into breakthrough lower-carbon technologies. Lower-cost-of-supply investments in U.S. tight oil, deepwater and liquefied natural gas (LNG) are key drivers behind XOM’s plans, and are supported by a suite of industry-leading technologies including advanced seismology, integrated reservoir modeling and data analytics. The company has announced it would increase tight oil production in the U.S. Permian Basin five-fold, and start up 25 projects worldwide, which will add volumes of more than 1 million oil-equivalent barrels per day. In 2017, XOM had added 10 billion oil-equivalent barrels to its resource base in locations including the Permian, Guyana, Mozambique, Papua New Guinea and Brazil. Moreover, XOM is upgrading its product slate through strategic investments at refineries in Baytown and Beaumont in Texas and Baton Rouge, Louisiana, Rotterdam, Antwerp, Singapore, and Fawley in the U.K. The company expects to grow its chemical manufacturing capacity in North America and Asia Pacific by about 40 percent, in part by adding 13 new facilities including two world-class steam crackers in the United States. Overall, the company is focused on four fundamentals: integration, technology, operational excellence and project execution. 


Growth Plans (Source: Company Reports)

Working with Partners on Innovative technologies: XOM is working with Connecticut-based FuelCell Energy, Inc. on a novel approach to capture carbon from natural gas power plants through fuel cell technology. On advanced algae biofuels, it is partnering with Synthetic Genomics in California; and for a more efficient chemical manufacturing technology, the group is joining hands with the Georgia Institute of Technology that could dramatically minimize process emissions, among numerous other projects and partnerships.

Initiatives to cut greenhouse gas emissions associated with its operations: XOM has recently announced initiatives to cut greenhouse gas emissions associated with its operations, specifically a targeted 15 percent reduction in methane emissions associated with production assets and a 25 percent reduction in flaring. The company has also announced its intention to improve its industry-leading energy efficiency in refining and chemical manufacturing facilities. XOM invests in lower-emission energy solutions such as cogeneration, flare reduction, energy efficiency, biofuels, carbon capture and storage and other technologies. Since 2000, XOM has spent more than $9 billion to develop and deploy higher-efficiency and lower-emission energy solutions across its operations. Moreover, Exxon Mobil has undertaken a number of initiatives to significantly reduce methane emissions, that include XTO Energy’s leak-detection-and-repair efforts and operational improvements at U.S. production and midstream sites that have reduced estimated methane emissions across Exxon Mobil operations by 2 percent in the past year. Further greenhouse-gas emissions reduction efforts will target Exxon Mobil’s global refining and chemicals manufacturing network with the goal of improving existing industry-leading energy efficiency performance. Additionally, the most significant reductions are expected to occur in operations in West Africa and include use of third-party infrastructure. Exxon Mobil is a charter member of the Global Gas Flaring Reduction Public-Private Partnership, which is committed to developing commercial opportunities to reduce flaring. The partnership is comprised of oil-producing countries, international and state-owned oil companies and the World Bank.

Upstream Business to Benefit from rise in Oil Price: XOM has exposure to virtually all the major producing areas in the world, from the United States, to South America, to the Middle East. This ultimately creates a significant basis risk hedge for the company with regards to its production. Further, with higher oil prices, the demand has stayed healthy against a backdrop of global growth, and the company has been experiencing the Brent premium, and Midland differential remains strong in the medium term. Moreover, as per the company's Upstream growth strategy, in the near term, XOM has numerous drilling locations with the company's specific focus recently being in Brazil. Domestically, XOM is focusing on its acreage in the Bakken and Permian where the company is spending the majority of its total domestic budget. Other such areas of focus include Papua New Guinea and Mozambique. Overall, higher crude prices will benefit the group in terms of profits and free cash flow.


Net Acreage Position with respect to Brazil (Source: Company Reports)

Qatar punts on Exxon's Argentina shale assets: The group is selling a 30% stake in two Argentina affiliates to Qatar Petroleum, again a leading supplier of LNG. The blocks, in Vaca Muerta in the onshore Neuquén basin in Argentina, are under active drilling plans as well as exploitation licenses with pilot drilling and production. The group intends to control the risk by bringing Qatar petroleum on board while from Qatar’s perspective, this is their first time sizeable shale investment.

Industry Drivers: Four major demand sectors for the firm include transportation, electricity generation, industrial, and residential and commercial. On the other side, as technology, societal demands and energy sources evolve, so does the mix and the amount of different energy supplies. By 2040, oil and natural gas are expected to meet about 55% of the world's energy needs, equivalent to about 200 million barrels a day, which is a rise over the existing level of 160 million. Other sources especially renewables, except coal, would also grow too. As per energy and carbon summary report, developed by experts at a Stanford Modeling Forum, more technology is needed, and this is where the group’s research and development is also focusing on solutions to provide energy and cut emissions. In the electricity generation and industrial sectors, carbon capture and storage is one of the major focus areas.

Stock Recommendation: XOM shares were up 1.71% on June 06, 2018 with the update on Carcara Oil Field Interest and have been rising recently generating about 5% returns in the last four weeks. Trading at a 4.1% dividend yield, we believe that the investors looking for a good income stream can consider adding the stock to their portfolio. XOM is one of the free cash flow-strongest energy companies in the sector, and has recently raised its dividend by a respectable amount. Further, the company also raised its dividend throughout the previous energy market downturn, which makes the company an excellent income vehicle for investors who look for regular income. While oil prices have lowered down a bit lately, the same are still at a level that can benefit XOM. Moreover, through record discoveries, world-class acquisitions and growing access to attractive markets, the company has put together the best portfolio of new investments since the Exxon-Mobil merger nearly 20 years ago. We believe the stock has more potential to grow and based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 82.06.
 

XOM Daily Chart (Source: Thomson Reuters)

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