Exxon Mobil Corporation
XOM vs. Venezuela

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By madamebutterfly1
February 15, 2008

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Madame, do not forget Venezuela is a sovereign entity & entitled to certain rights. Also tomorrow XOM may wish to do business in this country with bountiful reserves & cannot afford to p____ them off. XOM must tread carefully, respectfully & with the future in sight. As you continuously so astutely point to XOM's great stock buy back actions but note that buy backs & exploration expense are almost equal. Does this represent a growing company???

I endorse XOM's actions. Many years ago when the tar belt contracts formulated & signed (original contract made by Mobil) they represented a new form of agreement with the objective to protect the private entity from actions such as what occurred & to be able to recover investment plus some reward for the risk over the years since inception. Now the contracts will be tested in court. Do not forget that the multinational have seen many forms of nationalization over the last century but continued to make money & invest.


Venny, I hear what you are saying. However, to my knowledge if a "sovereign entity" like Venezuela willy-nilly changes the contract terms on you because they had decided that those contracts were too profitable for the oil companies, and unilaterally tells the oil company to do it their way or the highway, Exxon, under the contract terms that was written had the right to go to arbitration and seek redress. Obviously, and I am not privy to that, Exxon must have felt during the arbitration proceeding that something was going amok, and decided to take legal action to protect its potential compensation before the Venezuelan government moved the funds out of the reach of the courts. I don't see what is wrong with that.

Now, I do agree that this move closes any hope that Exxon would ever invest in Venezuela while Chavez is in there. But by the same token one has to realize that Exxon has stakes in other places, including Russia where some Russian officials are also trying to do Exxon in, and my suspicion is that Exxon is also trying to signal those that are being tempted to do Exxon in to watch out.

Now whether this is a good tactic or not, I don't know. But I do know how careful XOM weighs issues in a cold and calculated way -- they are not sway by emotional outburst, believe me. So if they have taken action like this one against Venezuela they must have weighed the pros and cons extensively, and management must have made the judgment that this was the way to go.

Exxon in the base case decided years ago before they had bought Mobil that they were not going to go into Venezuela because they did not trust the Vens -- this was the right judgment on their part. As you well point out, the reason Exxon was in Venezuela was because of Mobil. So in my view Exxon's judgment regarding Venezuela has been right all along, while the others in my view were not.

You well point out that the level of buybacks and that of exploration are about the same (actually buyback are almost double the amount of money we are spending on exploration) and you rhetorically ask whether this is representative of a growing company? The answer is, obviously not.

In fact, in the twenty plus odd years I have been with the company, the company has been losing market share almost every year, except for the year it acquired Mobil. Exxon growth is in its earnings per share and not in market share, and that has been the story of its success ...Shell on the other hand had many years where its market share growth kept going up, but look at the performance of its stock. My point is that what is important is that Exxon invests when it can make money, and when it cannot it gives the money back to its shareholders doing buybacks.

Madame Butterfly