XOM - Exxon

[sleepydragon]

I checked the ROE of xom last night. It was only 6%. That’s really low...

[compoundinglife]

Senior leaders at the company get paid dividends on unvested shares. A dividend cut which is preemptive is very very unlikely for this reason.

 

Interesting, is this a special deal for executives? Public companies I have worked at do not pay dividends on invested RSUs to the pleebs.

[Foreign Tuffett]

S&P downgraded credit rating today and XOM issued press release that it is evaluating capital spending plans

 

If XOM management/board is smart it will issue a press release in the relatively near future that the q'rtly dividend is suspended until the worldwide pandemic has passed and oil and LNG demand has at least somewhat recovered. The most important thing to do in this unprecedented (and that's not a word I use lightly) environment is to maintain the strength of its balance sheet.

[TwoCitiesCapital]

S&P downgraded credit rating today and XOM issued press release that it is evaluating capital spending plans

 

If XOM management/board is smart it will issue a press release in the relatively near future that the q'rtly dividend is suspended until the worldwide pandemic has passed and oil and LNG demand has at least somewhat recovered. The most important thing to do in this unprecedented (and that's not a word I use lightly) environment is to maintain the strength of its balance sheet.

 

What they could do is something similar to Santander during the financial crisis and years after. Keep the announced dividend, but pay it in shares and allow people to opt into a cash payment.

 

Allows for the "optics" of the dividend to continue which is important for a company who has long been relied on for it's dividend. Also allows those who need cash now to get it at the expenses of dilution to those willing to defer and wait out the increased balance sheet strength - some balance sheet relief while transferring economic benefit to those who are willing to wait.

 

Also allows the executives to keep their dividend as mentioned above.

 

Checks all boxes

[Foreign Tuffett]

S&P downgraded credit rating today and XOM issued press release that it is evaluating capital spending plans

 

If XOM management/board is smart it will issue a press release in the relatively near future that the q'rtly dividend is suspended until the worldwide pandemic has passed and oil and LNG demand has at least somewhat recovered. The most important thing to do in this unprecedented (and that's not a word I use lightly) environment is to maintain the strength of its balance sheet.

 

What they could do is something similar to Santander during the financial crisis and years after. Keep the announced dividend, but pay it in shares and allow people to opt into a cash payment.

 

Allows for the "optics" of the dividend to continue which is important for a company who has long been relied on for it's dividend. Also allows those who need cash now to get it at the expenses of dilution to those willing to defer and wait out the increased balance sheet strength - some balance sheet relief while transferring economic benefit to those who are willing to wait.

 

Also allows the executives to keep their dividend as mentioned above.

 

Checks all boxes

 

When it comes to "optics" vs long term shareholder value, I will opt for the latter every time. Paying the dividend in stock after the stock has cratered is not a good solution.

[TwoCitiesCapital]

S&P downgraded credit rating today and XOM issued press release that it is evaluating capital spending plans

 

If XOM management/board is smart it will issue a press release in the relatively near future that the q'rtly dividend is suspended until the worldwide pandemic has passed and oil and LNG demand has at least somewhat recovered. The most important thing to do in this unprecedented (and that's not a word I use lightly) environment is to maintain the strength of its balance sheet.

 

What they could do is something similar to Santander during the financial crisis and years after. Keep the announced dividend, but pay it in shares and allow people to opt into a cash payment.

 

Allows for the "optics" of the dividend to continue which is important for a company who has long been relied on for it's dividend. Also allows those who need cash now to get it at the expenses of dilution to those willing to defer and wait out the increased balance sheet strength - some balance sheet relief while transferring economic benefit to those who are willing to wait.

 

Also allows the executives to keep their dividend as mentioned above.

 

Checks all boxes

 

When it comes to "optics" vs long term shareholder value, I will opt for the latter every time. Paying the dividend in stock after the stock has cratered is not a good solution.

 

If everyone opts for the dividend in shares, it literally changes nothing one iota other than not being a taxable event (which improves your your outcome).

 

What difference is it to you if you have 100 shares worth $3000 not paying a dividend or 110 shares worth the same $3000 paying a dividend in shares?

 

The only difference it makes is it allows for optionality - those who prefer benefit today can trade it in exchange for benefit tomorrow (a la accepting dilution for cash payment). Those who are willing to stick with the company long-term take dividends in shares which allows company to repair balance sheet and they own a larger portion of a healthier company over time.

 

It also allows for them to say they've paid a continuous dividend so the shares aren't removed from dividend income strategies and they can keep a large portion of the dividend investor share vase intact.

[Xerxes]

Exxon (contrary to Chevron) few years ago shut off its share buyback program and pledge to invest close to $30B a year in the Permian basin. I like them for that at the time and was willing to be invested with them and be patient.

 

Now, my view is that is the CAPEX should go get significantly cut and buyback be re-instated at current prices but dividend should not get touched. They just had their Annual Meeting where they expressed being flexible in that regard (on CAPEX). But that was before Igor Sechin played MBS, and the latter went all-in with oil price war.

 

Now, Exxon absolutely needs to make drastic cuts to CAPEX.

[Foreign Tuffett]

S&P downgraded credit rating today and XOM issued press release that it is evaluating capital spending plans

 

If XOM management/board is smart it will issue a press release in the relatively near future that the q'rtly dividend is suspended until the worldwide pandemic has passed and oil and LNG demand has at least somewhat recovered. The most important thing to do in this unprecedented (and that's not a word I use lightly) environment is to maintain the strength of its balance sheet.

 

What they could do is something similar to Santander during the financial crisis and years after. Keep the announced dividend, but pay it in shares and allow people to opt into a cash payment.

 

Allows for the "optics" of the dividend to continue which is important for a company who has long been relied on for it's dividend. Also allows those who need cash now to get it at the expenses of dilution to those willing to defer and wait out the increased balance sheet strength - some balance sheet relief while transferring economic benefit to those who are willing to wait.

 

Also allows the executives to keep their dividend as mentioned above.

 

Checks all boxes

 

When it comes to "optics" vs long term shareholder value, I will opt for the latter every time. Paying the dividend in stock after the stock has cratered is not a good solution.

 

If everyone opts for the dividend in shares, it literally changes nothing one iota other than not being a taxable event (which improves your your outcome).

 

What difference is it to you if you have 100 shares worth $3000 not paying a dividend or 110 shares worth the same $3000 paying a dividend in shares?

 

The only difference it makes is it allows for optionality - those who prefer benefit today can trade it in exchange for benefit tomorrow (a la accepting dilution for cash payment). Those who are willing to stick with the company long-term take dividends in shares which allows company to repair balance sheet and they own a larger portion of a healthier company over time.

 

It also allows for them to say they've paid a continuous dividend so the shares aren't removed from dividend income strategies and they can keep a large portion of the dividend investor share vase intact.

 

You are confusing the issue by conflating two different things:

 

1) A 100% scrip dividend, which is a farce akin to slicing off a bit of each share and giving it right back to the shareholder

 

2) A cash or scrip dividend option, which is a more realistic scenario. Here the share price matters a great deal:

 

Hypothetical #1

Stock is at $10 per share

Option one: $1 cash dividend

Option two: 0.1 shares of XYZ stock

 

Hypothetical #2

Stock is at $100 per share

Option one: $1 cash dividend

Option two: 0.01 shares of XYZ stock

 

Think about XOM's beaten down share price.....

[Foreign Tuffett]

https://www.ft.com/content/6c94e0fc-6895-11ea-800d-da70cff6e4d3

 

"Exxon raised $2bn of the $8.5bn through new 10-year debt, which was priced to yield 240 basis points over a similarly maturing US Treasury, or 3.48 per cent. Less than a year ago it issued 10-year bonds with a so-called spread of just 75 basis points, which yielded 2.44 per cent at the time."

 

 

[benhacker]

Senior leaders at the company get paid dividends on unvested shares. A dividend cut which is preemptive is very very unlikely for this reason.

 

Interesting, is this a special deal for executives? Public companies I have worked at do not pay dividends on invested RSUs to the pleebs.

 

Not 100% sure.  But definitely not just C-suite.  I think maybe senior leaders and above.  It's definitely not a typical public co thing.

[dwy000]

Its very common in large Corporates. They need to give some value to the employees who take future shares instead of cash. Some even pay out the earnings not the dividend. Because the shares dont technically exist yet (they're issued when they vest) it is simply a payment.

[fareastwarriors]

The Humbling of Exxon

 

https://www.bloomberg.com/features/2020-exxonmobil-coronavirus-oil-demand/?srnd=businessweek-v2

[Xerxes]

There was a board member that recommended a podcast that had the gentleman from Semper Augustus as a guest.

Podcast is named "invest like the best"

 

I really enjoyed listening to the gentleman from Semper Augustus.

There is a portion of the episode where he talked about Exxon and I thought that was really interesting.

[HalfMeasure]

Anyone have updated thoughts on valuation? Any views on whether the $14-16bln in FCF for FY2017/FY2018 closer to mid-cycle FCF or peak FCF?

[Foreign Tuffett]

Anyone have updated thoughts on valuation? Any views on whether the $14-16bln in FCF for FY2017/FY2018 closer to mid-cycle FCF or peak FCF?

 

That is a brutally difficult question to answer, even just directionally. You are basically asking someone to forecast future oil, NG, and LNG prices + refining and chemical segment margins + general operational performance + how well the company directs capital to high return projects and away from low return projects + all sorts of idiosyncratic things like future Guyanese government policy

[SharperDingaan]

Just to give an indication as to how bad things are for XOM ..

 

At today's USD 40.04/share, and a dividend of USD 3.48/yr - the dividend growth model implies a G of 0.06, and a K of 0.152. Virtually all majors are cutting their divs by an average 50% - with G at 50% of prior levels at best. Were XOM to follow, the model suggests a price of USD 14.69/share; of course, panic selling on the day of the announcement, would drive it quite a bit lower  ;D  So, very unlikely.

https://www.barrons.com/articles/more-big-oil-companies-likely-to-cut-dividends-goldman-says-51588607785

 

Instead ... split the difference at USD 27.39 (40.04+14.69)/2, and accept a lot of volatility.

XOM has a lot of sovereign friends. There will be little tolerance for anything much under USD 25 for any length of time.

 

SD

 

 

 

[HalfMeasure]

Anyone have updated thoughts on valuation? Any views on whether the $14-16bln in FCF for FY2017/FY2018 closer to mid-cycle FCF or peak FCF?

 

That is a brutally difficult question to answer, even just directionally. You are basically asking someone to forecast future oil, NG, and LNG prices + refining and chemical segment margins + general operational performance + how well the company directs capital to high return projects and away from low return projects + all sorts of idiosyncratic things like future Guyanese government policy

 

Fair. I wasn't so much hoping for someone to step up with the "right" answer, but I'm curious to hear how others are thinking about it.

[Xerxes]

I have long maintained the view that post-2014 era created an environment where CAPEX curtailment in the industry would have given the majors one last hurray.

 

With COVID-19 and Saudi-Kremlin bickering, that Capex curtailment had become even more severe.

 

Oil prices may have lost their geopolitical premium due to the surplus created by the renaissance of US oil industry in the past 5 years, but still the world still needs oil. And I expect a rally and recovery couple of years down the road due to lack of capex investment dollar today and on the back of economic recovery.

 

Check out this interview. I kind of maintain the same view.

 

https://www.cnbc.com/video/2020/08/25/big-oil-isnt-dead-forever-buy-exxon-says-top-analyst.html

 

 

No doubt that today’s Exxon is not Lee Raymond’ Exxon and no doubt that the European players had already thrown in the towel cut their dividends and are looking to a greener future. I believe however that Exxon and Chevron will remain oil pure players and keep their dividends even as they continue to leverage their balance sheet to borrow and pay the dividends and that they will have their last day in the sun.

[SharperDingaan]

Quite agree that at some point oil prices are going to rise quite a bit - and stay up. What happens after that will depend very much on the merits of ongoing extraction from the existing fields, versus nuclear/renewables/hydrogen. Power stations still have to make and deliver the electricity that charges the electric vehicles.

 

However, a great many fields are going to strand, and for quite some time.

Even with the inevitable global disruptions new capital will go to existing fields only, and only as reliable secondary/tertiary production. XOM is going to recover capex by asset stripping - not by risking it on the new and brave. 

 

SD

[Broeb22]

Quite agree that at some point oil prices are going to rise quite a bit - and stay up. What happens after that will depend very much on the merits of ongoing extraction from the existing fields, versus nuclear/renewables/hydrogen. Power stations still have to make and deliver the electricity that charges the electric vehicles.

 

However, a great many fields are going to strand, and for quite some time.

Even with the inevitable global disruptions new capital will go to existing fields only, and only as reliable secondary/tertiary production. XOM is going to be recover capex by asset stripping - not by risking it on the new and brave. 

 

SD

 

Doesn't a sustained increase in oil prices hinge on shale production either ceasing or becoming more disciplined?

 

In the current environment, any increase in oil prices is pretty quickly matched with increased shale production, which drives prices down.

 

Until enough of these shale operators end up in the hands of disciplined people (in other words, consolidation) who only drill when the all-in well economics are positive will the oil price sustainably rebound. According to some people, we have enough shale to maintain "American energy independence" for decades at least.

 

It's kind of sad really that we have all these idiots out there drilling wells that have limited chances of creating wealth for them personally AND they are depleting a valuable resource and selling it for arguably less than its worth.

 

These tragedy of the commons type scenarios make me wonder if completely free markets for things like oil are ideal.

 

 

 

[SharperDingaan]

The elephants just do things the old fashioned way for a bit.

 

An independent shale producer continually needs someone to lend them money for drilling, and pipeline capacity to carry away their production.

If you want the elephants business .... don't lend to the independents, and don't give them the pipeline space under anything but take or pay.

 

Simply 'remind' bankers that XOM is a much better credit than dogshit coy, and borrows more - but it's a competitive market :) Offer the pipeline coy rolling 3-month 'take or pay', at marginally higher rates - for a rising 50%+ of their space. Buy out the independents with the capex stripped from the mega-projects. Pretty soon, there is discipline in the oil patch.

 

SD

 

 

 

[Xerxes]

My comment about shale acting as ceiling for higher prices is that, although that was the case in 2014-16, the shale producers have borrowed and burned so much that the capital markets don’t see them as growth names anymore. Keeping in mind that shale producers are high variable cost players as they have to keep drilling given that the well will exhaust itself really fast after 1 year.

 

So I think we need to differentiate between the valuable assets that the shale guys have and the shaky capital structure that is supporting those valuable assets. I think over the 5 years or so the surviving shale producers will either consolidate or be mopped up by Exxon and Chevron. It is going to be painful but consolidation needs to happen in a big way.

 

Sustained low prices and capital markets shying away should help transition of those shale assets under the umbrella of Big Oil.

[SharperDingaan]

Keep in mind as well that a shale oil field is really a GAS field, that happens to produce oil as by-product during the early years of its total producing life. The oil depletes rapidly, the gas depletes at 2-3%/yr, and typically has a 30-40 yr life - great for power stations in need of cheap and clean fuel for electricity generation  ;)  Consolidation WILL occur, and a lot faster that many think.

 

Happy hunting!

 

SD

 

 

 

[Xerxes]

Good to know.

I actually thought that oil-being-by-product phenomena was mostly in the Bakken field in North Dokota.

In fact, in the Permian, i kind of see it as other way around: as an oil field with natural gas as a by-product. and not having the needed infrastructure, they would just burn the by-product (natural gas) continuously.

 

[SharperDingaan]

Good to know.

I actually thought that oil-being-by-product phenomena was mostly in the Bakken field in North Dokota.

In fact, in the Permian, i kind of see it as other way around: as an oil field with natural gas as a by-product. and not having the needed infrastructure, they would just burn the by-product (natural gas) continuously.

 

It's SOLD as an oil-field, with gas as the by-product. Actual is quite a bit different.

At inception a good well may flow at 80% oil, 10% gas, 10% water. At 1 year in, it may be 45% oil, 45% gas, 10% water. At 2 years in, 30% oil, 65% gas, 15% water. At 3 years in, 20% oil, 60% gas, 20% water. Thereafter the rising water cut largely depending on how the reservoir is being produced. What do you really have? - a gas well!

 

A wise major ;) would focus on the Permian and buy up both the collection facilities, and the leases.

Once consolidated, convert the existing collection facility to gas, and truck the very limited quantities of oil.

 

SD