Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Would ExxonMobil Abandon America If Sanctions on Russia Forced It to Choose?

As crazy as it sounds, this guy could end up with ExxonMobil if the U.S. and Russia were to go through a business divorce. Photo source:

For over 100 years, the companies of the former Standard Oil Trust have been the standard bearers of the American oil industry. ExxonMobil (NYSE: XOM  ) , the largest remaining member of the Standard family of businesses and the largest company on the American exchanges, is as much a part of American history as any company out there. But the recent tensions between Russia and the U.S. has some questioning whether ExxonMobil's relationship with Russian company Rosneft can continue if increasing sanctions were applied to it. Perhaps the better question would be, if Exxon were forced to choose between cooperating with Russian companies and its American operations, which one would it choose?

At first, the very idea sounds absolutely ludicrous. If you look at ExxonMobil's portfolio, though, the answer may not be as simple as you might think. Let's take a deeper look at ExxonMobil's assets to see why choosing between operating in America and overseas may not be as much of a slam dunk as we originally thought. 

The international symbol of American energy is less American than you think
The downing of the Malaysian Airlines flight is another tragic example of the recent tensions between Russia and the West, mostly over Ukraine. This has led President Obama to enforce even tighter sanctions on two major Russian oil and gas companies: Rosneft and Novatek. According to the administration, these sanctions are made in a way that they will hurt these Russian companies, but they will minimize harm on Western companies. Here's the problem with that. Between all of the joint ventures and equity stakes that Western companies have in Russia, it is near impossible to impose sanctions on the Rosnefts and Novateks of the world without harming Western firms.

This is where it gets a little tricky for international oil companies like ExxonMobil, the United States has slowly become a smaller and smaller part of the business for decades, and its by far the least profitable part of the company. For Exxon and just about all members of big oil, it's all about the upstream side of the business. In the case of ExxonMobil, though, it's actually all about the non-U.S. side of the upstream business.

Oil and gas production from outside the United States accounts for almost 70% of the company's earnings and has a return on capital employed of 24.3%, compared to the US production side of the business that only accounts for 12% of earnings and has a paltry 7% ROCE. The argument could be made that ExxonMobil's downstream and chemical operations in the U.S. have the highest returns in the company, but they are a small part of the total earnings stream and they only boost the U.S. segment's ROCE to 10.9%.

Exxonmobil Business Segment Total Earnings (FY 2013, in millions and % of total) Return on Capital Employed (FY 2013)
U.S. Upstream Only $4,191 (12.8%) 7%
International Upstream Only $22,650 (69.6%) 24.3%
Total U.S. Operations $9,145 (23%) 10.9%
Total International Operations $24,973 (77%)  19.4%

Source: Exxonmobil 10-K, authors calculations

If we look further into the future, it appears that ExxonMobil will continue to decrease its exposure to U.S. operations. Eight of the major projects that will come to completion within the next couple of years all are outside the United States, and only 7.8% of the undeveloped acreage in ExxonMobil's portfolio is in the United States. In fact, the 11 million net acres in the Rosneft Arctic joint venture is more than double the undeveloped acreage held in the United States. This joint venture alone, expected to cost $500 billion, has enough oil that preliminary estimates believe that it could single-handedly triple ExxonMobil's proved reserves. 

What a Fool believes
There have been several calls from the media that U.S. companies should pull out of Russia because of what has happened recently. But for ExxonMobil, losing operations in Russia could actually have a much larger impact on the future of the company than losing its American business segment. Considering this, it's a little easier to understand why on the first day of these new sanctions ExxonMobil mobilized its first offshore rig to the Russian Arctic for the summer exploration season and why it seems to be continuing on business as usual despite these sanctions. 

Investors in ExxonMobil should really pay attention to these sanctions, because if the U.S. were to ratchet sanctions up even further, then it could have a extremely profound impact on the future of ExxonMobil. I'm not saying that Exxon would close up shop in the U.S. if it had to choose between the two places, but management will have to seriously mull it over. 

OPEC is absolutely terrified of this game-changer
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!

Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3038633, ~/Articles/ArticleHandler.aspx, 9/1/2015 12:25:14 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tyler Crowe

Energy and materials columnist for

Today's Market

updated 3 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 4:01 PM
XOM $75.24 Up +0.17 +0.23%
ExxonMobil Corp CAPS Rating: ****