Exxon Mobil Corporation (XOM): Safe Haven for Oil Dividend Investors During the Oil Crash

During the first two quarters of the year Exxon’s refineries produced 4.2 million barrels per day of gasoline, diesel, and jet fuel, much of which made up the 5.4 million barrels per day of refined oil products Exxon sold around the globe via its diverse network of gas stations.

Finally, as one might expect, Exxon’s specialty chemical division is equally massive, producing 12.5 million tons of high-margin petrochemicals in the first half of 2016. The chemical division is helping to offset much of the financial pain through this most challenging of energy markets.

In fact, thanks to how low oil prices have fallen, actual oil production made up the smallest contribution to the company’s earnings during the most recent quarter.

Business Segment Segment Earnings % of Earnings
Upstream (Production) $294 million 17.3%
Downstream (Refining) $825 million 48.5%
Chemical $1.217 billion 71.6%
Corporate -$636 million -37.4%
Total $1.7 billion 100%

Source: ExxonMobil Q2 2016 Earnings Factsheet

Business Analysis

The key to Exxon’s long-term investment thesis is its world class management, led by CEO Rex Tillerson, who has been with Exxon since 1975 when he began working as a production engineer.

Over his 41-year tenure, Tillerson has lived through numerous boom bust cycles in the energy industry and has helped to instill a highly conservative and hyper-efficient corporate culture at Exxon.

Exxon’s integrated business model also enables it to react more effectively, efficiently, and quickly to changes in the business environment. The company’s diverse asset base provides market optionality and operational flexibility while allowing Exxon to optimize profits throughout various commodity cycles better than most of its peers.

The company’s scale further helps it maintain lower costs than its peers. For example, Exxon’s Downstream and Chemical businesses generated over $50 billion in earnings over the last five years, nearly twice as much as its nearest competitor.

Exxon’s return on capital employed averaged 18% over the past five years, which is close to five percentage points higher than the next closest competitor as well. Management has done an excellent job allocating capital to create economic value.

Looking ahead, the company’s massive resource base of 91 billion oil-equivalent barrels provides sold visibility. Exxon has a long reserve life of 16 years at current production rates, which leads all competition.

Perhaps more importantly, Exxon’s track record of profitably replacing its resources is outstanding. Like clockwork, Exxon Mobil Corporation (NYSE:XOM) has added around 1.5 billion to 2 billion oil-equivalent barrels of resources to proved reserves each year, replacing more than 100% of production for more than two decades.

Under Tillerson’s guidance, Exxon has consistently produced the lowest costs and highest margins of any of its integrated oil major rivals.

Exxon Mobil XOM Dividend Safe

Exxon Mobil XOM Dividend Safe