Note: Nothing in this piece is investment advice. Do your own diligence. It’s your money after all. Author has no positions in ExxonMobil, outside of any possible through 401k index funds. Featured image from ExxonMobil homepage.
Win or Lose, the President has Majorly Damaged ExxonMobil
Given the US president’s pro fossil fuel behavior, the question is simple: How come he has done major damage to ExxonMobil and Big Oil? I can’t answer that directly, but I can show how severe the damage has been.
For the sake of this analysis, I am going to look at ExxonMobil. Generally speaking, Big Oil has performed terribly through the 45th presidency.
|ExxonMobil||October 2016||October 2020||% change|
|YTD Cash flow||$16,900,000,000||$12,431,000,000||-26%|
|Oil-equivalent production (barrels per day)||$3,800,000||$3,700,000||-3%|
|Price of Oil||$46.86||$33.38||-29%|
What are some of the things I notice? EPS has turned negative for the last nine months compared to the same time in 2016. At the same time, dividend payouts have moved strongly higher. Many others in Big Oil have cut their dividend. ExxonMobil did not cut, but they did not increase it either. This is the first time in a decade the dividend has not been increased. Perhaps this would be okay if they have had the cash flow to back it up, but they don’t. YTD Cash Flow has decreased by $4.5B compared to 2016, while CapEx has increased by $2.2B from 2016. Many believe ExxonMobil’s dividend is at risk. With a whopping yield of 10.7%, that is much higher than Big Oil competitors’. The price of oil has declined 29% over the last four years. The share price has been subject to upper cuts and massive body blows, declining by 62% over the same timeframe.
ExxonMobil has said it is committed to preserving the dividend, and has started cutting employees and reducing CapEx in a desperate bid to save cash. Previous studies have shown ExxonMobil being one of the most stubborn Big Oil companies to move towards net-zero emissions and being carbon neutral. For the sake of the company, the employees, and their investors, they better hope the president doesn’t win again. The wealth destruction has been massive.
How a Biden Presidency might Help ExxonMobil
Imagine that VP Biden wins the election, which may not be known for many days, depending on how the electoral votes land. He has mentioned certain actions he would undertake as part of his plan to tackle climate change if he is to win.
Eliminate drilling on federal lands
Drilling on federal lands is the last thing Exxon and Big Oil needs. They don’t need more supply in an overflooded market. Keeping the oil locked away conserves our federal lands and reduces the threat of future supply problems.
A rising carbon fee over the coming years would raise the price of oil and natural gas. Smaller competitors unable to cope would go out of business. Less competition helps restore profitability.
No oil subsidies
VP Biden has stated he would work to remove oil subsidies. These subsidies cost the government tens of billions of dollars. Subsidies, by their very nature in reducing costs, stimulate more production than the market-clearing level, leading to lower prices. That’s the last thing Big Oil needs. Reduce the subsidies, hail the free market, production will be reduced, and prices will rise. Isn’t that what conservative Republicans used to argue before doing a voodoo cult dance? Subsidies are bad, and the free market reigns supreme? Give it to them in abundance.
Less influence from Russian and Saudi cartels
The Russian and Saudi martial arts production punch in the earlier part of the pandemic led to massive oversupply, a crash in prices, a crash in demand, cratering the economy even further and leading to a crash in profitability. By shifting the country towards renewable energy, Big Oil would be less susceptible towards what these cartel countries do toward oil supplies.
Editor’s note: Donald Trump is also extremely weak on Russia and Saudi Arabia, presumably because they underwrite hundreds of million dollars of loans Trump’s company has taken out, but that’s a story for another time.
Rejoin the Paris climate accords
VP Biden has said one of the first things he plans to do is rejoin the Paris climate accords. With the US and the entire world aligned together, there would be less reason for ExxonMobil to fight climate change, and more reason to get on board and evolve sooner than later. It would simplify planning and investments.
Tackle the pandemic
VP Biden has said tackling the pandemic and restoring growth are a top priority. With a saner response on how to deal with the pandemic, guidelines on when and how to re-open, working with states to use masks, and a focus on adequate supplies of personal protective equipment, there is a better chance that there will be fewer lockdowns and a faster economic recovery. Economic recovery will aid energy prices, boosting profits.
A sorely needed boot kick to the pants
Big Oil has tremendous engineering expertise with oil wells, fracking, pipelines, and drilling in challenging environments. Using that engineering expertise to tackle larger renewable energy projects would speed along the transition to an all renewable future. Big Oil in the US has lagged its European counterparts in electric vehicle chargers and diversifying portfolios for zero emissions.
By adding a carbon fee and reducing oil subsidies, Big Oil might realize the future is now. Exxon might start moving its CapEx in a way that aligns with helping the world, making money, and doing good all at the same time. If US Big Oil is not careful, it will have its lunch and dinner silently eaten by Tesla, new EV companies, utilities that are eliminating coal and natural gas, electrifying ships and heavy trucks, battery companies, virtual power plants, and oil companies that are evolving into these industries. It’s better to participate in the future and have a stake in it than be blindsided and lose everything. We need large-scale solutions that can store excess renewable energy in the summer and use it during the winter. The market is still open to good solutions for that.
Higher fuel economy / electric vehicle standards
Big Auto realizes it needs to sell its clunkers while investing for the future. Big Oil needs to do the same. A wholesale shift to electric vehicles will permanently reduce oil demand. Higher fuel economy or electric vehicle standards mean it is in the interest of Big Oil to disengage from producing oil and shift to producing, storing, and moving electricity.
Many states and climate change organizations have sued ExxonMobil for hiding decades of evidence that their products contribute to people-driven climate change. Shifting to renewables will show the company’s leadership is empathetic, not tone deaf, and respects the public and outside stakeholders. This goodwill may go a long way to reducing future lawsuits and penalties.
Join the clean energy future, ExxonMobil! Make the leap towards Big Renewable Energy.
- ExxonMobil 3rd quarter shareholder report
- ExxonMobil 3rd quarter report
- ExxonMobil historical price lookup
- ExxonMobil dividend information
- Trading Economics
- Exxon employee information from macrotrends