Will ExxonMobil Soar Past Chevron and BP in 2014?

ExxonMobil (XOM 0.02%) hasn't given investors the returns they had hoped to see in 2013, with a 16% jump lagging behind the 21% that the Dow Jones Industrials (^DJI -0.11%) has produced so far this year. Yet even though Exxon and rival BP (BP 0.13%) spent most of the year trying to catch up to fellow oil giant Chevron (CVX 0.44%), a recent rebound suggests Exxon might be the company to beat in 2014.

For consumers who've paid high prices at the pump for gas for years, the troubles that ExxonMobil has had to deal with might seem trivial. Yet even though relatively high oil prices have supported the use of unconventional production methods like hydraulic fracturing to help Exxon, Chevron, and BP boost their overall production, Exxon in particular still has to work hard just to keep its massive output totals from following the natural rate of decline of its existing wells. Yet could favorable conditions in the natural-gas market help boost Exxon's fortune in the coming year? Let's take a closer look at ExxonMobil's prospects for 2014.

Exxon's partnership with Rosneft could be extremely important in 2014 and beyond. Source: Rosneft Media Relations.

Stats on ExxonMobil

Source: Yahoo Finance.

Will ExxonMobil soar from here?
Judging from the consensus view of most analysts, ExxonMobil doesn't have any upside left for 2014. With the stock above the current target price, even expanding earnings prospects haven't been enough to get Wall Street into Exxon's corner.

Exxon faces what could be a tough environment for oil prices in 2014. Even though the International Energy Agency boosted its 2014 projections for global oil demand last week, the opening of Iranian oil exports following the oil-producing giant's agreement on nuclear issues could add even more supply to the market. As a result, a number of commodities analysts have come out with bearish calls for crude prices, with Barclays forecasting a drop in Brent crude to $101 per barrel and Deutsche Bank following suit with a call for $98 Brent and $89 West Texas Intermediate prices. Obviously, those calls hurt Chevron and BP just as much as they would Exxon.

One big factor for ExxonMobil's future is whether spreads between domestic and global crude oil prices widen or narrow in 2014. During the third quarter, prices for WTI crude approached those of more expensive Brent oil, which knocked Exxon's refining profits down sharply. During the fourth quarter, though, those spreads have widened again. If plentiful domestic oil production leads to continued disparities in oil prices, then a bounce-back for Exxon's refining operations could help support overall earnings in the coming year.

Still, production is an important consideration. BP has moved back into the Gulf of Mexico in search of greater production, working with Exxon on the Thunder Horse platform, which is BP's largest producing deepwater field. Meanwhile, Chevron sees boosting production by 700,000 oil-equivalent barrels per day, more than a quarter above current levels. Exxon will have to work hard to keep production up by capitalizing on areas like the Arctic without sacrificing its historical discipline to do projects only if they produce adequate returns on capital.

Yet what many people neglect to consider about Exxon is its big presence in the natural-gas business. Highly successful liquefied natural gas export terminals built in conjunction with Qatar Petroleum have demonstrated Exxon's leadership in the LNG industry, even as Chevron aims to ramp up its own LNG presence in order to maximize the value of its massive nat-gas finds in western Australia. Closer to home, U.S. natural gas prices have soared recently, although much of the spike came from cold weather that caused a typical knee-jerk reaction higher. Nevertheless, Exxon stands to gain a lot if the rise becomes permanent, with hopes that its acquisition of XTO Energy four years ago will eventually prove to have been a visionary move.

In the end, ExxonMobil's performance in 2014 will rely on the company's ability to keep production volumes up and on global markets for crude oil, natural gas, and refined energy products. If a recovering economy boosts demand, even the pace of new finds across the industry might be insufficient to keep prices from defying analysts' expectations and climbing higher. That could produce Exxon's best chance to beat out Chevron and BP in 2014, as long as Exxon's share of acquiring lucrative new energy opportunities bests those of its rivals.

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