The trouble with Big Oil.
By Irina Slav, Oilprice.com:
ExxonMobil reported earnings of US$2.65 billion for the third quarter of the year, or US$0.63 per share, largely in line with analyst expectations. The positive result reaffirmed the company’s reputation as one of the most stable Big Oil players.
In its financial report, the company noted that the annual drop in earnings from US$4.2 billion for the third quarter of 2015 was caused by lower refining margins and chronically depressed oil and gas prices, despite the pickup in crude over the last few months.
Even so, Exxon’s downstream business fared much better than its upstream operations. While earnings from exploration and production stood at US$620 million, chemicals and downstream operations contributed US$2.4 billion combined.
A recent report from the Institute for Energy Economics and Financial Analysis, however, warned that Exxon is suffering from fundamental weaknesses in its financials, which could spell an “irreversible decline” for the world’s top public E&P.
The report’s author, IEEFA’s director of finance, Tom Sanzillo, notes that Exxon has seen a 45-percent drop in its revenues over the past five years, accompanied by cuts on capex, declines in cash balances at the end of each year, and shrinking cash flows.
Lithium prices have tripled over the last few years as the electric car boom starts to take hold. A number of companies are uniquely positioned to generate huge gains for early in investors.
What’s more, Exxon has become increasingly dependent on long-term debt to maintain its dividend policy, the sacred cow of energy companies.
One analyst, Bob Litterman, who used to be the chief of risk management at Goldman Sachs, commented that Exxon is taking unjustified risks by focusing on large-scale projects in expensive areas, such as oil sands, the Arctic, and deepwater deposits, while there is cheap oil supply coming to the market from elsewhere.
Truth be told, Exxon has put its Arctic ambitions on hold, exiting Canada’s Arctic projects last year and now being forced to stay out of the Russian Arctic, where it partnered with Rosneft, because of the U.S. and EU sanctions against the energy business of the country.
The company is even considering action with regard to climate change as it becomes increasingly aware that some of its large shareholders are expecting this, in addition to the regular flow of dividends. By Irina Slav.
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