Why ExxonMobil Might Just Be a Growth Stock

Relied upon for years for its stable profits and steady dividends, ExxonMobil, as a result of a number of strategic initiatives this year and beyond, could start looking more like a growth stock.

Jun 5, 2014 at 11:00AM

As the largest energy company in the world, ExxonMobil (NYSE:XOM) doesn't seem like an ideal candidate for growth investors. The typically slow-and-steady oil and gas behemoth is usually more closely associated with value and dividends. After all, those are the elements that have defined ExxonMobil over the past several years.

But you might want to think again before you write off ExxonMobil as a lumbering giant. That's because in addition to its reliable dividends, ExxonMobil has a number of projects lined up this year and over the next few years. Combined with a recent asset trade with upstream exploration and production company LINN Energy (NASDAQ:LINE), these initiatives have the potential to put some life back in the company's production. Before long, ExxonMobil might just prove that it's a growth stock, too.

Wheeling and dealing
ExxonMobil is fresh off a deal with upstream master limited partnership LINN Energy involving LINN's prized asset in the Permian Basin. Acquiring LINN's 25,000 acres in the Midland Basin section presents high potential for liquids production, which is where ExxonMobil is shifting focus. From a production standpoint, ExxonMobil will absorb approximately 2,000 barrels of oil equivalent per day of current production, and LINN will retain about 3,000 barrels of oil per day.

In return, LINN receives a portion of ExxonMobil's interest in the Hugoton field that stretches across Kansas and Oklahoma. Production there stands at about 85 MM cubic feet of equivalent per day. Of this production, 80% is natural gas and 20% is composed of natural gas liquids. Total reserves are estimated to be approximately 700 billion cubic feet of equivalent, 80% of which is natural gas.

ExxonMobil is targeting liquids for its higher-margin potential. For instance, the company's upstream segment grew earnings 45% to $1.2 billion, thanks in large part to this planned mix effect. Natural gas production actually fell 9% in the quarter.

This deal is a good one for ExxonMobil because it provides steady, long-term production capabilities. It will take a while to ramp up a drilling program in the newly acquired Midland acreage, but the sizable production potential is very attractive over the long term.

Nearer term, ExxonMobil has a number of projects coming online, which should provide a boost to current production.

ExxonMobil has several aces up its sleeve
ExxonMobil expects to bring 10 major upstream projects online this year. That would represent a record for the company, and those projects have a combined capacity of approximately 300,000 barrels of oil equivalent per day. That represents 7% growth from the 4.1 million barrels of oil-equivalent production per day in the first quarter.

Of these, the Kearl project is one of the most important. Kearl is a huge undertaking in the Canadian oil sands. ExxonMobil announced it had officially begun production at the Kearl oil sands project one year ago. The initial phase calls for production of 160,000 barrels per day. This represents 21% growth from the 757,000 barrels per day of liquids production received from North America and South America last quarter.

By next year, the company believes production capacity will double from initial levels. Over the long term, Kearl holds amazing potential. Production is expected to total 4.6 billion barrels over a 40-year time frame.

Final Foolish thoughts
A simple reality of the world we live in is that people need energy. That's particularly true in the emerging markets. So who better to fulfill this demand than the largest oil and gas producer in the world?

ExxonMobil has a stable business that produces high returns on capital like clockwork. The stock isn't expensive, pays a solid dividend, and has a number of growth initiatives set to ramp up over the next couple of years. This was likely the thesis behind Warren Buffett buying 40 million shares of ExxonMobil late last year. And he's already done well considering that his cost basis was around $90 per share. Clearly Buffett believes in ExxonMobil's long-term prospects, and for all the reasons mentioned above, you should too.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Bob Ciura 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

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.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

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. It's also featured on several dozen 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 ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers