Friday, 31 July 2015

US big cap oil - do you buy or pass on Exxon Mobil?

Relatively speaking I thought that both the BP (link here) and Royal Dutch Shell (link here) numbers were quite workable - and the shares responded accordingly.

In reaction terms numbers today from both Exxon Mobil and Chevron were not taken well with both shares clearly down at the time of writing.  So what to think?

First Exxon Mobil.  No surprises about the broad profile of the numbers on a year-on-year basis with upstream profitability crushed whilst downstream and the chemicals business moved forward.

No surprises on this.  As with the BP and Royal Dutch write-ups linked above my feeling is that the key here remains the sustainability of dividends and other forms of shareholder remuneration.  Starting with Exxon no surprises that their c. 3.5% dividend yield currently is not being covered...


...but of course c. US$33bn of debt is not even one times underlying ebitda.  On the conference call the company reiterated their commitment to a progressive dividend and the buyback did continue:

'During the first half of 2015, ExxonMobil purchased 32 million shares of its common stock for the treasury at a gross cost of $2.8 billion. These purchases included $2 billion to reduce the number of shares outstanding, with the balance used to acquire shares in conjunction with the company’s benefit plans and programs'.

Otherwise I noted efficient cost per barrel of proved reserve additions which is theoretically good...

...whilst again on the conference call they were a little coy about M&A opportunities and preferred to talk about internal initiatives ('robust inventory of investment opportunities...both upstream and downstream') including of course LNG into Asia.   

Exxon Mobil shares are trading at levels not seen since mid-2012 or, on a more sustained basis, 2011. 

My instinct at the moment is to prefer the aforementioned Royal Dutch Shell with a bigger headline dividend yield and greater options with the synergy opportunities with the BG Group takeover...and Royal Dutch Shell has underperformed over a similar time period to the above: 


The entire well capitalised resources space is flashing 'value' at the moment but it is important to still try to optimally pick stocks.  In my view I would own Royal Dutch Shell above Exxon Mobil today.  

In the next part later today I will review Chevron who also reported today.  

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