Exxon Mobil: A Global Force in Energy With a Positive Dividend Outlook
Exxon Mobil is one of the world's oldest oil companies, formed in 1870 as part of business magnate John D. Rockefeller's Standard Oil empire. The firm has evolved from a regional refiner and distributor of kerosene used in lamps to one of the world's largest petroleum and petrochemical enterprises.
Exxon controls all aspects of the fossil fuel business, from exploration and production to transportation, refining, and retail gasoline sales. This vertical integration diversifies Exxon's cash flow and softens its sensitivity to commodity price fluctuations.
For example, low oil prices sap profits from upstream oil and gas production. However, these same low prices reduce the input costs in Exxon's refining and chemical divisions, historically helping the firm remain profitable during lean times.
The company's diverse asset base also provides market optionality and operational flexibility. This mix helps Exxon optimize profits throughout various commodity cycles better than most of its peers, typically earning it a higher return on the capital it invests.
Exxon's longstanding relationships with political figures and regulators have also contributed to the firm's historically strong investment returns. These connections have helped Exxon win big deals to produce oil fields for foreign nations, a significant part of its upstream business.
Governments trust that Exxon can get projects done faster than most state-owned oil giants, given its technology and operational leadership, often while achieving better production yields by drilling in areas where others can't. This relationship often helps the host country make more money faster, establishing Exxon as an attractive partner.
In addition to its company-specific strengths, Exxon has benefited from increasing global oil production from less than 2 million barrels per day (bpd) in 1920 to almost 100 million bpd.
Liquid fuels took the largest share of global energy supplies due to their widespread availability, affordability, ease of transportation, and ability to meet a variety of needs.
This tailwind, coupled with the firm's strong balance sheet (AA- credit rating) and cost discipline, has helped Exxon and its predecessors pay uninterrupted dividends since 1882, with annual increases every year since 1983.
However, some investors worry that the world's growing push to reduce carbon emissions and embrace renewable energy will cause fossil fuel demand to peak within the next couple of decades, sooner than many energy executives expect.
Exxon's sheer size and dedication to its lucrative oil and gas business could make it difficult for the firm to adapt to a more rapid energy transition scenario. Should a shift in strategy become necessary, Exxon may need to evaluate its capital allocation priorities.
That said, long-term predictions about energy come with plenty of uncertainty. Fossil fuels could remain a core component of the world's energy mix, given their importance to developing markets, providing a long tail of demand for the industry's largest, lowest-cost producers.
Overall, Exxon should remain a global force in energy for the foreseeable future thanks to its quality assets, integrated operations, diverse resource base, strong balance sheet, and scale. The stock could appeal to contrarian income investors who believe in oil's staying power.
Exxon controls all aspects of the fossil fuel business, from exploration and production to transportation, refining, and retail gasoline sales. This vertical integration diversifies Exxon's cash flow and softens its sensitivity to commodity price fluctuations.
For example, low oil prices sap profits from upstream oil and gas production. However, these same low prices reduce the input costs in Exxon's refining and chemical divisions, historically helping the firm remain profitable during lean times.
The company's diverse asset base also provides market optionality and operational flexibility. This mix helps Exxon optimize profits throughout various commodity cycles better than most of its peers, typically earning it a higher return on the capital it invests.
Exxon's longstanding relationships with political figures and regulators have also contributed to the firm's historically strong investment returns. These connections have helped Exxon win big deals to produce oil fields for foreign nations, a significant part of its upstream business.
Governments trust that Exxon can get projects done faster than most state-owned oil giants, given its technology and operational leadership, often while achieving better production yields by drilling in areas where others can't. This relationship often helps the host country make more money faster, establishing Exxon as an attractive partner.
In addition to its company-specific strengths, Exxon has benefited from increasing global oil production from less than 2 million barrels per day (bpd) in 1920 to almost 100 million bpd.
Liquid fuels took the largest share of global energy supplies due to their widespread availability, affordability, ease of transportation, and ability to meet a variety of needs.
This tailwind, coupled with the firm's strong balance sheet (AA- credit rating) and cost discipline, has helped Exxon and its predecessors pay uninterrupted dividends since 1882, with annual increases every year since 1983.
However, some investors worry that the world's growing push to reduce carbon emissions and embrace renewable energy will cause fossil fuel demand to peak within the next couple of decades, sooner than many energy executives expect.
Exxon's sheer size and dedication to its lucrative oil and gas business could make it difficult for the firm to adapt to a more rapid energy transition scenario. Should a shift in strategy become necessary, Exxon may need to evaluate its capital allocation priorities.
That said, long-term predictions about energy come with plenty of uncertainty. Fossil fuels could remain a core component of the world's energy mix, given their importance to developing markets, providing a long tail of demand for the industry's largest, lowest-cost producers.
Overall, Exxon should remain a global force in energy for the foreseeable future thanks to its quality assets, integrated operations, diverse resource base, strong balance sheet, and scale. The stock could appeal to contrarian income investors who believe in oil's staying power.
