I believe that ExxonMobil Corp. (XOM) shares currently trade at a fair value, and going forward they are well positioned to maintain positive growth and steady profits. Exxon is not an exciting stock, nor is it really a growth stock, or a high-dividend paying stock; essentially nothing about Exxon makes investors get excited and want to pile money into the company. But Exxon does have redeeming features: the management have been a good steward of capital throughout the years, they return value to their investors with dividends and share buybacks consistently, they have raised their dividend steadily over the years, they are committed to maintaining a conservative attitude on strategic acquisitions and capital expenditures, and they are not a volatile stock.
I would almost go so far as to say that Exxon is the Berkshire Hathaway of the oil patch. They are not flashy, and don't chase the quick buck; rather they stay committed to a time-proven strategy that focuses on a good return on investment and creating highly predictable cashflows for a long period of time.
This is not to say that Exxon is perfect for everyone. I think young investors with a long investment horizon could probably do better with something besides an integrated major, and even look into some of the E&P guys or some strictly non-conventional resource plays. For many of the older folks out there, I think XOM is a great value at its current price. It offers a safe yield that will steadily increase over time, and a price that really does not fluctuate significantly with the broader market's gyrations. This is perfect for an investor looking for a stock with low volatility, but that has the ability to match inflation and still kick back cash to the shareholders. Exxon is not completely dull however, they have many smaller side-businesses that are focusing on developing technologies and future possibilities. Chemicals, bio-fuels, and new techniques for extracting non-conventional oil and gas assets, etc.
Below are some notes I found interesting from their most recent conference call:
As you are aware, on December 14, 2009, ExxonMobil and XTO Energy (XTO) announced an agreement bringing together two organizations with highly complementary skills and capabilities. XTO has assembled a substantial high quality, unconventional natural gas and oil resource base in the U.S. They also have extensive technical capabilities and operating experience in unconventional resources.
These qualities, combined with ExxonMobil''s global unconventional gas portfolio, world class research and technology capabilities, industry-leading project management and operational skills and financial capacity will create a premier global unconventional resource organization.
Turning to our unconventional gas opportunities, during 2009, ExxonMobil increased its position in the Marcellus shale gas play through the formation of a 50/50 joint venture with Pennsylvania General Energy. The joint venture holds approximately 290,000 gross acres in the play and we are encouraged by the drilling results and production rates achieved so far. Including this capture, our total global unconventional gas acreage now stands at over 5.5 million net acres.
During the quarter, the second phase of the Al Khaleej Gas projects started up in Qatar. AKG Phase II has the capacity to supply 1.25 billion cubic feet of natural gas per day to meet Qatar''s growing domestic demand. Combined with Phase I, which has been operating since 2005, AKG Phase II has increased the project's total gas supply capacity to 2 billion cubic feet of natural gas per day.
Including AKG Phase II, Qatargas 2, Trains 4 and 5 and RasGas Train 6 in Qatar, the South Hook LNG receiving terminal in the U.K., the Adriatic LNG terminal in Italy, Piceance Phase I in the U.S. and Tyrihans in Norway, ExxonMobil completed eight major product start-ups in 2009. These projects are forecast to provide a combined net production of nearly 400,000 oil equivalent barrels per day in 2010.
The final Qatar LNG train, RasGas Train 7, is completing commissioning. Gas is now flowing into the facility and we anticipate first LNG in the coming weeks. This will be the fourth 7.8 million tons per year train brought online by our joint ventures with Qatar Petroleum. Including this train, we will participate in approximately 62 million tons per year of LNG capacity in Qatar.
In December, ExxonMobil and our co-venture partners agreed to proceed with the Papua New Guinea LNG project. The project is an integrated development that includes gas production and processing facilities, onshore and offshore pipelines and liquefaction facilities with the capacity to produce 6.6 million tons of LNG per year.
Another feature that is attractive about Exxon is their commitment to not overpaying for assets. When do they go out and make huge natural gas purchases? When natural gas is at multi-year lows of course. Prudent management of company assets and capital is key to long-term value creation, something Warren Buffett knows quite well. Take a look at his comments on the Kraft (KFT) and Cadbury tie up as an example. I for one do not accuse Exxon of overpaying for XTO. On the contrary, it is a calculated move to snatch up huge long-lived assets in an energy hungry world at very fair prices. I have no doubt that Exxon will leverage the synergies of both companies' technological expertise and resources to pay back their purchase with interest.
Overall, Exxon represents a good value for investors looking for a safe place to park their money. Exxon has proven throughout the years that they are very conservative with the allocation of shareholder money, and will err on the side of caution when it comes to deploying that capital. This may prevent them from being first to the newest and greatest thing, but with their size and cash position (10+ bln), they can afford to wait and act when necessary. In addition, a consistently increasing dividend along with vast underlying oil and natural gas assets offer a nice hedge against possible future inflation.
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