Exxon Mobil: Buy the Oil Opportunity

Exxon Mobil (XOM) is investing in high margin products. Recently, the company had announced plans to better utilize its proprietary technology at the Rotterdam refinery in the Netherlands to efficiently produce high-quality Group II base stocks and ultra-low sulfur diesel to meet the growing market demand.

This expansion project includes recent base stocks investment at Exxon Mobil’s Baytown, Texas and Singapore refineries.
This should certainly drive its productions and strengthen its position as the world’s largest producers of lube base stocks.

In addition, Exxon Mobil had announced an expansion at its Singapore lubricants plant to produce synthetic lubricants. This includes its Mobile 1TM, its flagship synthetic engine oil. Exxon Mobil expects this plant to get completed in the second-half of 2017. Upon completion, this facility will be the only plant in the Asia Pacific region producing synthetic lubricants. This should drive growth for Exxon Mobil as the company with its technology will be in a better position to bring premium products to market in support of growing demand.

Another sweet spot is Exxon Mobil Chemical business that grew by $103 million to $4.4 billion in 2015, driven by stronger margins that increased its earnings by more than $590 million. Exxon has strategically integrated these businesses to its portfolio that are now creating incremental value for its investors.

This is one area, the company is looking great. Looking ahead, Exxon Mobil plans to accelerate upstream earnings through this favorable volume and mix effect by way of new project execution and work programs coupled with reduced maintenance activities and higher seasonal demand. Also, the company is planning to further reduce operating costs for these new projects that should have a positive impact on its upstream earnings in 2016.

Reducing operating costs and capital expenditure

Exxon Mobil meanwhile continues to focus on core fundamental such as reduction in operating costs and capital expenditure. For instance, the company achieved approximately $11.5 billion in capital and cash operating costs reductions. Also, the company’s ongoing asset management program yielded $5.1 billion of cash flow from operations and asset sales.

Exxon Mobil was able to realize these savings all the way through various capital efficiency programs, market savings, reduced activity and timely project delivery. Looking ahead, the company anticipates its capital and exploration expenditures to be $23.2 billion in 2016, a decrease of almost $8 billion or 25% from 2015. This is tremendous efforts and will enhance its cash flows in 2016.

Moreover, these savings are worth mentioning as they are coming during this weak commodity price environment. In fact, driven by these savings the company generated operating cash flow of $32.7 billion and positive free cash flow of $6.5 billion for the year. This helped the company to sustain its dividend and distribute approximately $3.6 billion to its shareholders for the quarter. In fact, its total dividends per share of $2.88 are up 6.7% versus 2014. The company for the entire year paid over $15.1 billion in dividends to its shareholders.

Conclusion

Exxon Mobil is making significant progress operationally. It has reduced its capital expenditure and costs significantly in 2015 and plans to further make reductions in these areas. Also, it is diversifying its downstream businesses that should continue to drive margins and its cash flows during this weak commodity price environment.
Published on Apr 14, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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