ExxonMobil's (XOM) Recent Decisions: Connecting The Dots

Digesting a bunch of recent events and guessing which way ExxonMobil Corporation (NYSE:XOM) is going can be tricky for investors. However, there is an easy way to understand how the events are going to shape the company's future.

Streamlining Assets

The company's divestment portfolio recently included its stakes in the Scarborough gas field offshore Western Australia and Terra Nova oil project offshore Canada. It gives the company an opportunity to look for better prospects. It will increase the company’s profitability ratios, which is already much higher than the industry.

Investors should know that Exxon Mobil’s plan to divest the risky offshore operations reflects strong focus on growth projects. In fact, the integrated energy player divested $3.1 billion worth assets during 2017.

With a stable cash position, the company’s balance sheet is one of the best in the industry. Apart from shale production, the company is currently concentrating on projects in Papua New Guinea, Guyana and others, where production is highly profitable and can bring higher returns.

However, the $19 billion Papua New Guinea liquefied natural gas (LNG) project has witnessed a setback recently due to an earthquake in the area. ExxonMobil is now assessing the damages at the site, which will help to determine when production can be revived.

New Discovery

ExxonMobil's oil and gas reserves grew 19% in 2017. The company is adding more to the reserves with new terrific discoveries. Recently, it made its seventh oil discovery offshore Guyana. The company found around 20 meters of high-quality, oil-bearing sandstone reservoir in the Stabroek Block. The company plans to develop the new well Pacora-1 in conjunction with the Payara field. The latest addition is expected to push the company's production in Guyana above the 500,000 barrels per day (BPD) mark. ExxonMobil (45% interest) is the major stakeholder in the project with Hess Corporation (NYSE:HES) and CNOOC Limited (NYSE:CEO) as partners holding 30% and 25% stake, respectively.

Abiding by the Sanctions

More secure production possibilities are putting ExxonMobil in a comfortable place where it can let go of the oil-rich Russian Arctic. Following the U.S. and European sanctions against Russia, the company decided to pull out of a joint venture (JV) with Rosneft, which is controlled by the Moscow government. Although this move can make ExxonMobil incur an after-tax loss of around $200 million, it can hardly affect the oil behemoth that earned $19,710 million profit in 2017.

Other Government Decisions

The U.S tax reform has left $7.1 billion non-cash positive impact on the company’s 2017 results. It has also helped the company to make a huge decision. ExxonMobil will spend around $50 billion in the United States over the coming five years. However, the recent steel tariff proposed by the government may spoil the spirit a bit. A 25% tariff on imported steel can increase costs, which can potentially impact the company’s refinery expansion plans, according to Reuters.

Stanford Strategic Energy Alliance

All the moves from ExxonMobil stated above show that the company is reasoning for the long term. Every step the company is taking will prove beneficial in the future. ExxonMobil becoming one of the founding members of the Stanford Strategic Energy Alliance, along with the Bank of America Corporation (NYSE:BAC) , is another positive. The program has the objective of improving the global energy infrastructure, which can help it to become more sustainable, affordable and secured. The largest publicly traded energy company, which currently has a Zacks Rank #3 (Hold), will provide $20 million over the next five years in the program. Through research and development, ExxonMobil expects to find lower-carbon energy solutions.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

ExxonMobil has lost 8.8% in the last year against 6.1% rise witnessed by the industry it belongs to.

About the Company

Irving, TX-based ExxonMobil is the world’s largest publicly traded oil and gas firm. The company has a leading position in the energy industry owing to the size and diversity of its asset base, both in terms of business mix and geographical footprint. It has three operating segments: Upstream, Downstream and Chemical.

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