Big oil remains up against the ropes. On top of the 2020 COVID-19 pandemic crushing oil demand, a war for market share between Russia and Saudi Arabia delivered a crushing blow to even the healthiest of the oil companies this year.
While many companies can survive and are hedged, the mighty Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) are mere shadows of their former glory days. Some very hard decisions could have to be made ahead, and those actions may go against what management has pledged not to do.
While it is true that almost every oil company has run into issues, Exxon may need some serious intervention if it wants to have smooth operations in the years ahead. While shareholders might feel even more pain initially, the efforts might position the company to sail through future storms.
History was recently broken after S&P booted Exxon out of the Dow Jones industrial average. Chevron is deemed the healthier of the two oil and gas giants, so its position in the Dow was maintained. Exxon was always the larger of the two leaders, but its market cap of $141 billion was barely higher than Chevron’s $137 billion. Those market capitalizations briefly inverted in prior weeks.
Exxon used to be the most valuable company in America, but it was ranked down at number 44 on the S& P 500 on last look. Shareholders may not like what needs to happen, but sometimes near-term pain is required for long-term safety. The question now is whether Exxon has now waited too long.
Exxon’s mergers and acquisitions ambitions have not been very active since the 2009 acquisition of XTO Energy, but the company has been shifting its focus to a smaller group of energy projects. Much of its future now seems to revolve around major fields off Guyana.
While this entire review is very negative, it is impossible to predict where Exxon’s stock will go in the future. It could show another major recovery, but it could keep listing lower. It recovered to over $50 briefly this summer, after challenging $30 in March, but now it’s back to within 10% of its lows. It seems impossible to conceive a return to $70, as seen early this year, and ditto for the prior peak at $100 or so back in 2014.
It remains uncertain if Exxon’s long-term outlook is realistic. The company’s latest 2040 outlook noted that oil and natural gas make up about 55% of global energy use today, but by 2040 the company still believes that oil and gas will continue to supply more than 50% of global energy. The company also has noted that investment in oil and natural gas is still required to replace natural decline from existing production and to meet future demand.
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