ExxonMobil is Dragging Down the Dow Today

A prediction of flat production in 2014 has shares of ExxonMobil falling today.

Mar 5, 2014 at 3:30PM

Stock markets are mixed today on further evidence that the job market has been heavily affected by weather this winter. Payroll processor ADP said that 139,000 nonfarm private-sector jobs were added in February, which was up from 127,000 in January, although that number was revised down from an original estimate of 175,000. In short, the U.S. economy is adding jobs at a particularly measured rate, and one reason for the slow uptick could be nasty weather across most of the country this year.  

The Dow Jones Industrial Average (DJINDICES:^DJI) was off a slight 0.24% in late trading; index members are split between risers and fallers. If it weren't for a 2.8% drop in shares of ExxonMobil (NYSE:XOM) the index would be trading about flat for the day.

Holes forming in big oil
ExxonMobil's sharp sell-off today comes after the company said overall production would be flat this year at about 4 million barrels of oil equivalent per day. But liquids production is expected to grow between 2% and 4% from 2015-2017 as new projects come online.  

Xom Station Image

U.S. consumers are spending less time at ExxonMobil stations like this one.

The slow production growth is part of a focus on higher-margin energy plays and a cutback on low-margin segments such as lU.S. natural gas. Capital spending will drop 6% to $39.8 billion this year from $42.5 billion a year ago and is expected to average less than $37 billion from 2015 to 2017.  

The other thing weighing on investors today is the future of ExxonMobil's holdings in Russia. The company has drilling rights to 11.4 million acres there and expects Russia's Arctic shale to be a big growth opportunity. If the U.S. sanctions Russia following the Putin government's incursion into Ukraine's Crimea region, those assets could be in jeopardy, further eroding potential growth.

The core problem for ExxonMobil
Data points such as projected production and return on investment have caught investors' eyes today, but the big long-term problem is that oil and natural gas are becoming harder and more expensive to produce. You can see that in the decision to forgo growth opportunities to focus on plays where margins are higher.

This is the new world in which Big Oil plays, where alternatives to oil and gas exist and consumers aren't willing to pay higher prices every year. In fact, consumption is down over the past decade in the developing world, which isn't good for ExxonMobil's future revenue growth.

One of the bigger winners in energy
Where the big money is being made right now is in providing service to explorers like ExxonMobil. Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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