It really wasn't that long ago that Exxon faced their version of the BP spill. Faced with an environmental disaster that was in many ways just as daunting as the crisis that BP paced, the economic cost and reputational damage that Exxon faced after the Valdez crisis was severe. For Exxon-Mobil (XOM) to today be the largest energy company in the world is no small accomplishment.
Exxon has been a very well run company for many years. Merging with Mobil in the late nineties, Exxon has consistently avoided negative PR, made timely acquisitions, and showed solid oil production increases until recently. The stock has done well during the recent nearly six month market rally as well.
Rallying around 20% from the summer lows, Exxon shares are today at their fifty-two week high.
However, when we compare Exxon to other oil producers over the last several years, the company's shares have clearly lagged that the performance of most stocks in the energy sector on a fairly consistent basis.
While the OIH is an oil service index, it is still notable that Exxon has underperformed most oil service stocks by nearly 40% in the last two years.
Exxon share have similarly lagged most smaller oil producers, as well as the S&P 500 and its tracking exchange traded fund SPY.
Unfortunately, the story for investors with Exxon appears to be over. While Exxon has been able to grow their oil and gas production numbers for many years, today the company's market cap is over 400 billion dollars. Exxon also now gets over 60% of its total production from natural gas. Exxon's management team is also committed to continuing to maximize natural gas production with XTO's new drilling techniques no matter where prices go.
While Exxon's merger with Mobil and subsequent acquisitions have largely gone well, their acquisition of XTO, largely a move to increase their position in natural gas, could not have been more poorly timed. Today companies like Chesapeake Energy (CHK) and Conoco-Phillips (COP) have already talked about massively reduced expenditures and commitment to new natural gas drilling project.
Also, while Exxon's profits have become increasingly tied to lower margin natural gas production, their oil production numbers continue to disappoint as well. Exxon's fourth quarter earnings report showed just a 1% production increase on a year-to-year basis, despite a significant rise in the price of oil during the year. Exxon also recently reported a significant drop in their fourth quarter oil production numbers in Europe and Africa, where the company gets nearly a third of its total production today.
To conclude, while Exxon has been a great stock and continues to be a very well run company, Exxon shares have lagged the performance of the energy sector for some time. While stocks like Apple (AAPL) and tracking ETFs for the S&P 500 like SPY have rallied more than the most energy stocks during the current rally, Exxon continues to underperform its peers in the energy sector as well.
While the biggest companies often get the most attention, often times the best value is elsewhere. With smaller oil companies like Apache (APA) and EGO Resources (EGO) raising their oil production numbers at around 10% a year, Exxon's shares are likely to continue to underperform the overall energy sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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