Stock markets are mixed today on further evidence that the job market has been heavily affected by weather this winter. Payroll processor ADP said that 139,000 nonfarm private-sector jobs were added in February, which was up from 127,000 in January, although that number was revised down from an original estimate of 175,000. In short, the U.S. economy is adding jobs at a particularly measured rate, and one reason for the slow uptick could be nasty weather across most of the country this year.
The Dow Jones Industrial Average (DJINDICES:^DJI) was off a slight 0.24% in late trading; index members are split between risers and fallers. If it weren't for a 2.8% drop in shares of ExxonMobil (NYSE:XOM) the index would be trading about flat for the day.
Holes forming in big oil
ExxonMobil's sharp sell-off today comes after the company said overall production would be flat this year at about 4 million barrels of oil equivalent per day. But liquids production is expected to grow between 2% and 4% from 2015-2017 as new projects come online.
The slow production growth is part of a focus on higher-margin energy plays and a cutback on low-margin segments such as lU.S. natural gas. Capital spending will drop 6% to $39.8 billion this year from $42.5 billion a year ago and is expected to average less than $37 billion from 2015 to 2017.
The other thing weighing on investors today is the future of ExxonMobil's holdings in Russia. The company has drilling rights to 11.4 million acres there and expects Russia's Arctic shale to be a big growth opportunity. If the U.S. sanctions Russia following the Putin government's incursion into Ukraine's Crimea region, those assets could be in jeopardy, further eroding potential growth.
The core problem for ExxonMobil
Data points such as projected production and return on investment have caught investors' eyes today, but the big long-term problem is that oil and natural gas are becoming harder and more expensive to produce. You can see that in the decision to forgo growth opportunities to focus on plays where margins are higher.
This is the new world in which Big Oil plays, where alternatives to oil and gas exist and consumers aren't willing to pay higher prices every year. In fact, consumption is down over the past decade in the developing world, which isn't good for ExxonMobil's future revenue growth.