Why the Skeptics Are Wrong About ExxonMobil
For decades to come, the world will still need petroleum, Exxon may end up the last supermajor standing
No matter how you spin it, ExxonMobil has been humbled: It’s accumulated $2.3 billion in losses this year, the worst performance in the company’s 150-year history. Its share price has dropped 38% in 2020, and it’s laying off about 14,000 employees. In August, Exxon — the last original member of the Dow Jones Industrial — was kicked off the index. And, for a short time, its market cap even dropped below that of Chevron, the California oil company that it has always viewed as a lesser rival.
All of this has got the vultures circling: Exxon — heir to the original Standard Oil begun in 1870 by John D. Rockefeller — is being uncustomarily stalked by hostile shareholders out for blood. They’re demanding that Exxon slash costs, stop seeking growth, and instead reserve what’s left to deliver better profits.
The critics are in large part right. Exxon has made a series of abjectly bad investments: Spending $41 billion to acquire XTO and its prime U.S. shale assets in 2009, just before natural gas prices went into a long-term dive, and buying into Russia’s Kara Sea just before the Russian invasion of Crimea forced it to pull out. Meanwhile, the gusher of U.S. shale oil has created a huge global glut, driving down oil prices just as other forces — climate change regulations, the rise of electric cars, and changed driving habits — have driven down oil demand. Then there’s the Covid-19 pandemic, which temporarily pushed oil prices into negative territory.
But critics go too far when they suggest that Exxon is headed for its demise. Exxon did overreach in Russia and U.S. shale, but it is also responsible for one of the biggest oil finds ever: the discovery of some 9 billion barrels of oil equivalent in the new petrostate of Guyana. It has also found oil in neighboring Suriname. Oil prices are up 38% over the last two months, providing Exxon some breathing room. On Tuesday, Goldman Sachs upgraded its rating of the company’s shares from neutral to a buy, targeting an approximately 20% rise in its stock price over the coming year. Goldman figures that once oil climbs above $59 a barrel, about $8 from where it is now, Exxon will be in the black.
In the meantime, no one should doubt Exxon’s conviction to what it does best. While rivals BP and Shell may be planning a long-term pivot into renewable energy businesses — which both have announced — ExxonMobil is a purist. It originated the model for the superlatively profitable oil business, is probably the most skilled operator on the planet, and is likely to stick with oil. For decades to come, the world will need petroleum — still the basis for civilization as we know it — and Exxon may very well end up the last supermajor standing.