Exxon Mobil's Cash Hoard Offers Major Growth Options


Rex W. Tillerson, CEO of ExxonMobil
(Click to Enlarge)

IRVING (Dow Jones Newswires), Jan. 9, 2009

With nearly $40 billion in cash in its coffers, Exxon Mobil holds enough financial firepower to pull off an industry-changing transaction, energy mavens say.

While it's true that integrated oil giants such as Exxon Mobil (XOM), Chevron (CVX), BP (BP), Royal Dutch Shell (RDSA) and ConocoPhillips (COP) face weaker fourth-quarter profits, energy demand is depressed and retail gasoline prices are below $1.80 a gallon, opportunities for a major merger or acquisition remain ripe, analysts say.

Shrunken stock prices, $40-a-barrel oil and a dire need for cash to develop hard-to-reach energy reserves could drive acquisitions with cash-rich firms like Exxon Mobil.

So while tough times afflict the stocks of major energy firms, the industry could be on the verge of the biggest round of deal-making since a fertile period 10 years ago when oil sold for less than $10 a barrel.

When the dust cleared, Exxon bought Mobil, BP bought Arco and Chevron purchased Texaco as the landscape changed.

"In our opinion, 2009 could be Exxon Mobil's year," Neil McMahon, analyst with Sanford Bernstein, said in a note to clients Friday. "The company is in a unique position to gap farther away from the competition by turning the industry structure on its head again, as it did in parallel with BP in 1998 by starting the merger trend."

This time around, Exxon Mobil is in an arguably stronger position, with the potential to add future production growth to its financial performance through targeted mergers and acquisitions and joint-venture deals, he noted.

"With many exploration and production companies struggling to manage their finances, there is a ready pool of takeover targets, and those companies have been leading the exploration effort in several of the places where Exxon Mobil would like to grow, such as Brazil and West Africa," McMahon said. "We believe there could be the potential for game-changing maneuvers, similar to those seen back in the late 1990s."

A major alliance between Petrobras (PBR) could work well for Exxon, on the heels of a huge need for cash by the state-run Brazilian oil giant as it seeks to develop rich discoveries in the Atlantic Ocean off Rio de Janeiro.

Brian Youngberg of Edward Jones echoed the sentiment on Wall Street of likely deal-making in the energy sector if oil prices remain low and cash stays scarce, although he declined to speculate on any specific deals.

"The majors are growth-challenged but relatively cash rich, and there are companies out there with depressed share prices that can help with volume growth using the cash influx that the majors could offer," Youngberg said. "I do not see further consolidation of the majors themselves."

He said the oil giants may shy away from a major deal with a state-run oil company, given the difficulties BP faces with its TNK-BP venture in Russia.

"I see the acquisition of smaller U.S. or Canadian producers as more likely," Youngberg said. "These also offer the potential for increased production in unconventional natural gas, a major growth area in natural gas supplies."

With a market cap of about $400 billion, Irving, Texas-based Exxon Mobil remains about $200 billion richer than Wal-Mart Stores (WMT) as the largest company in the world -- even after shedding about $100 billion in value from July of last year.

Flush with riches from $100-a-barrel oil during 2008, Exxon Mobil finished out its third quarter with $37 billion in cash. Each quarter, it has been spending $8 billion on stock buybacks alone -- more than enough to buy a significant energy firm.

On its third-quarter conference call, Exxon Mobil officials said the company could be interested in an investment in biofuels because it already ranks as one of the largest purchasers of ethanol to satisfy blending mandates from the federal government.

Meanwhile, energy giants like Chesapeake Energy (CHK) have been selling off assets and cutting their capital spending in the face of a cash crunch.  

Copyright (c) 2008 Dow Jones & Company, Inc.

Related Companies
 Company: BP plcmore info


 - Billionaire Ratcliffe Hunts Oil to Repeat Chemicals Empire Build (May 24)
 - Woodside Sees Output Growing 15 Pct Over Next Three Years (May 23)
 - BP Sees Early Promise, Growing Investment In Mexico Energy (May 17)
 Company: Exxon Mobil Corporationmore info


 - Nigeria To Mediate In Dispute Between Exxon And Labor Unions (May 24)
 - Shell Shareholders Reject Emissions Target Proposal (May 23)
 - ExxonMobil, Total Discuss Offshore Drilling Opportunities In Greece (May 19)
 Company: Petrobrasmore info


 - Petrobras Sees Room For More Efficient Payroll, CAPEX (May 12)
 - Petrobras Eyes Adding Texas, African Assets to Asset Sale Plan (May 10)
 - Exxon, Petrobras Said to Hold Talks on Wide-Ranging Partnership (May 9)
 Company: Shellmore info


 - No New Demand, More Supply Leaves Spot Price Languishing (May 26)
 - Woodside Sees Output Growing 15 Pct Over Next Three Years (May 23)
 - Shell Shareholders Reject Emissions Target Proposal (May 23)
 Company: ConocoPhillipsmore info


 - ConocoPhillips To Lay Off 300 In Canada After Cenovus Deal (May 4)
 - ConocoPhillips Posts Surprise Loss On Higher-Than-Expected Costs (May 2)
 - Deal Of The Month: ConocoPhillips Cuts Gas Profile in $3B San Juan Sale (Apr 28)
 Company: Chevron Corporationmore info
 - No New Demand, More Supply Leaves Spot Price Languishing (May 26)
 - South Africa Wants Sinopec to Retain Refinery Capacity (May 25)
 - Venezuela Oil Executive Arrested in Corruption Probe (May 23)
 Company: Chesapeake Energy Corporationmore info
 - Chesapeake CEO: Downturn Challenges Helped Oil, Gas Companies (Mar 7)
 - Chesapeake Energy Posts Smaller Quarterly Loss (Feb 23)
 - Chesapeake Earns Almost $1B from Two Haynesville Gas Asset Sales (Dec 20)
 Company: TNK-BPmore info
 - Rosneft Board Member Rejects Criticism of TNK-BP Buyout (Oct 4)
 - Rosneft: TNK-BP Integration 'Mostly Complete' (Jun 20)
 - TNK-BP Acquisition Boosts Rosneft's 1Q Production (Apr 30)
 Company: Texacomore info
 - Western, National Oil Firm Partnerships Make Sense (Feb 3)
 - Exxon Mobil's Cash Hoard Offers Major Growth Options (Jan 9)
 - Chevron Expects to Defeat Ecuador in Amazon Cleanup Litigation (Mar 27)
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE


Most Popular Articles


Brent Crude Oil : $51.46/BBL 4.63%
Light Crude Oil : $48.9/BBL 4.78%
Natural Gas : $3.18/MMBtu 0.90%
Updated in last 24 hours