Can ExxonMobil Do More With Less?

ExxonMobil will reduce its capital investment program this year.

Mar 6, 2014 at 10:15AM
Longview

Stocks opened higher this morning, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) up 0.27% and 0.4%, respectively, at 10:15 a.m. EST. Meanwhile, Dow component and energy supermajor ExxonMobil (NYSE:XOM) announced yesterday it is reducing its capital spending program in a continued effort to focus on profitability and returns on invested capital.

Images

Last year marked a record high for ExxonMobil capital investment at $42.5 billion. That figure is now expected to fall to about $40 billion this year, followed by an annual average of less than $37 billion in 2015-2017, excluding any acquisition. That will necessarily impact production: the company now says it expects to produce the equivalent of 4.3 million barrels of oil and gas per day in 2017, which would top the 4.2 million achieved in 2013, but is 10% below the projection of 4.8 million for 2017 it gave a year ago.

ExxonMobil's decision is consistent with the path already taken by supermajors Chevron (NYSE:CVX), Royal Dutch Shell, and Total. Chevron, for example, in December announced a $39.8 billion capital and exploratory investment program for 2014 -- the same size as ExxonMobil and roughly $2 billion less than Chevron's then-expected total investments for 2013. However, ExxonMobil is already at the top of its peer group in terms of return on capital; its five-year average return is 17.3%, according to data from S&P Capital IQ.

True to ExxonMobil's laser focus on profitability, CEO Rex Tillerson told analysts this week that the company aims to "remain disciplined and selective with our capital, ensuring that any new investment contributes to robust cash flow growth." Furthermore, Tillerson said ExxonMobil plans to rebalance its investments in favor of the downstream segment.

ExxonMobil's decision comes at a tricky time for the supermajors, as some investors have voiced concerns that dwindling production growth and rising capital expenditures will strain their ability to maintain dividend payouts and share buybacks at the level of recent years. Last week, an influential investor raised another thorny issue for oil and gas companies. Norway's sovereign wealth fund -- which owns on average 1.25% of every single listed company in the world and is itself the product of oil revenue -- made waves when it said it will examine whether it should invest in oil, gas, and coal companies at all due to concerns over global warming.

In his 2011 annual letter to shareholders, Berkshire Hathaway CEO Warren Buffett wrote that "a century from now ... ExxonMobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions." Maybe so, but I would suggest the ride (and even the destination) may not be as smooth as that statement suggests -- even the Oracle of Omaha has trouble seeing that far out.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Chevron. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers