🛢 Can Exxon Undo Its Costliest Mistake?

Lucid races past Ford; Qualcomm at record high.

Hey Global Investor! Here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Tuesday’s Close) 4,700.90 +18.10 (0.39%)

NASDAQ (Tuesday’s Close) 15,973.86 +120.01 (0.76%)

FTSE 100 (5 PM IST) 7,310.93 -16.04 (0.22%)

NIFTY 50 (Today’s Close) 17,898.65 -100.55 (0.56%)

USDINR (Today’s Close) 74.27 (1 Year -0.99%)

🔥 Top Movers

PLBY +31.58%
LCID +23.71%
GOEV +23.67%

LABP -23.91%
CMP -20.79%
JMIA -19.22%

🛢 Exxon: Exfoliating XTO?

US’ top oil producer, Exxon Mobil (XOM), has launched the sale of its oil & gas assets in the US’ first major shale field. The company is shuffling its portfolio to focus on more lucrative assets. Is this something the management was going to do, or is this due to shareholder activism paying dividends? (Tweet This)

Debt For Dividend!

Three years ago, Exxon set a goal of raising $15B through selling its unwanted assets by the end of 2021. But, lower oil prices meant that the company did not find many takers for its assets. The pandemic dealt a further blow to Exxon’s plans.

Companies were cutting dividends to conserve cash in the middle of a raging pandemic. However, for Exxon, the dividend was a sacred cow that couldn’t be sacrificed. So the company kept assuming debt to continue to pay dividends to shareholders.

The result? Towards the end of 2020, the company had a debt burden of over $70B. Add to that lower gas prices, and for the full year of 2020, Exxon reported a crushing $22.4B loss.

With oil prices now having recovered to multi-year highs, Exxon is moving forward with its asset sale plan to get a handle on its debt. As of date, Exxon’s outstanding debt is around $63B.

This is thanks to its misadventure with natural gas producer XTO Energy which Exxon had acquired for $41B in late 2009. But gas oversupplies pushed prices to record lows. As a result, Exxon had to write down the value of its oil & gas holdings in the US by $17.1B. These assets are still languishing on their books.

The Change Engine

At long last, Exxon is selling its under-performing oil & gas assets in the first major US shale field in Texas. This will allow it to focus on more lucrative assets in Guyana, offshore Brazil, and the Permian Basin.

Exxon’s Barnett Shale Holdings is on the block, which includes 2.7K wells across 182K acres in North Texas. Even as the sale moves forward, production operations will continue normally. Bids of up to $500M are expected over the next few weeks, and Exxon plans to close the deal shortly thereafter.

While gas prices in the US are up 75% this year, a concern with these assets is that shale gas production from these wells has halved since 2016, to 227 million cubic feet per day during the first six months of the year.

The company has continued to cut costs despite higher oil prices which benefited both its topline and bottom-line. As such, its Q3 results, which it reported in October, were the strongest since 2017. By 2025, Exxon expects to report $30B in annual profit.

Some more significant changes are making themselves felt in the company at the board level. In May, shareholders managed to vote two climate change activists onto the company’s board, a first in its two-decade history.

This was even possible at a company like Exxon, which means the winds of change are blowing strong. Engine No.1, a small activist hedge fund, was behind the move. In September, Royal Dutch Shell Plc also announced its exit from the Permian basin after being forced by a court in The Hague.

While the company hasn’t made clear how it plans to promote cleaner energy, what is clear is it’s selling assets and rationalizing its portfolio. The green days will come fast and furious. For now, shareholders are just happy to have the dividends continue unabated.

Market Reaction
XOM ended at $65.02, up 1.01%. Shares are up 57% this year.

Company Snapshot 📈

XOM $65.02 +0.65 (1.01%)

Analyst Ratings (32 Analysts) BUY 31%  HOLD 59%  SELL 10%

Newsworthy 📰

Racing: EV start-up Lucid’s market value blows past Ford at over $89B as shares skyrocket (LCID +23.71%)

Surge: Qualcomm forecasts post-Apple sales growth, shares hit all-time high (QCOM +7.89%)

Worry: Walmart says it’s ready for holidays – but hasn’t yet seen huge wave of early shoppers (WMT -2.55%)

Later Today 🕒

  • NVIDIA Corp. Earnings (NVDA)
  • Cisco Inc. Earnings (CSCO)
  • Lowe’s Companies Inc. Earnings (LOW)
  • Target Corp. Earnings (TGT)
  • TJX Companies Inc. Earnings (TJX)
  • Copart Inc. Earnings (CPRT)
  • Tetra Tech Inc. Earnings (TTEK)
  • Sonos Inc. Earnings (SONO)
  • Brady Corp. Earnings (BRC)
  • Manchester United Earnings (MANU)
  • America’s Car-Mart Inc. Earnings (CRMT)

Today’s Market Terminology: Ex-Bonus

Shares bought or sold after a record date for the issue of bonus shares are traded ex-bonus. When shares become ex-bonus, their price falls in the ratio in which the bonus shares are issued

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