(Bloomberg) — It’s almost as if the last decade never happened for Exxon Mobil Corp. shares.
Once the gold-standard of Big Oil, the stock closed Monday at its lowest since October 2010, amid a slump in oil prices due to concerns about weak demand coupled with a glut. The S&P 500 also posted its worst one-day decline since October.
But for Exxon, which dropped out of the index’s top 10 largest companies by market value for the first time last year, the malaise runs deeper than the state of the crude market.
Chief Executive Officer Darren Woods is running a counter-cyclical strategy by plowing money in new oil and gas assets, at a time when many investors are urging energy companies to improve returns for shareholders. Some shareholders are even demanding a plan to move away from fossil fuels altogether.
Exxon is betting on a “windfall of cash” to arrive from its investments sometime in the mid to late 2020s, said Noah Barrett, a Denver-based energy analyst at Janus Henderson, which manages $356 billion. “Right now there’s higher value placed on generating cash flow today.”
Exxon is ramping up capital spending to more than $30 billion a year, without a hard ceiling, as it develops offshore oil in Guyana, liquefied natural gas in Mozambique, chemical facilities in China and the U.S. Gulf Coast, as well as a series of refinery upgrades. Woods is convinced the world will need oil and gas for the foreseeable future and sees an opportunity for expansion while competitors shy away from such long-term investments.
Most of these investments “will not meaningfully begin contributing to earnings/cash flow until the 2023-2025 time frame,” Scotiabank analysts led by Paul Cheng said in a Jan. 23 note, downgrading the stock to the equivalent of a sell rating…
Source: FuelFix
