Fitch Affirms ExxonMobil's IDR at 'AAA'

Fitch Ratings

Fitch Ratings has affirmed the following ratings of Exxon Mobil Corporation (ExxonMobil):

  • Issuer Default Rating (IDR) at 'AAA';
  • Senior unsecured debt at 'AAA';
  • Commercial paper at 'F1+';
  • Short-term IDR at 'F1+'.

The Rating Outlook is Stable.

The ratings reflect the unsurpassed depth, breadth, and quality of ExxonMobil's asset portfolio and strong competitive position in all parts of the integrated oil chain; the company's disciplined returns-based investment focus and best-in-class ability to generate returns on capital employed (ROCEs) with low levels of financial leverage; its very strong cash flow generation capability and historical record of maintaining the highest levels of credit quality throughout previous cycles in the oil industry; as well as the strategic value the rating confers on the company in negotiations with National Oil Companies (NOCs) and other international partners when it comes to long-term deals.

ExxonMobil's strong cash flows and very low leverage translates into some of the most robust credit metrics in the industry and across the corporate sector. At March 31, 2009, total debt was just $9.2 billion, down modestly from the $9.43 billion level seen at year-end 2008. The company had just under $25 billion of cash and cash equivalents, which exceeded its balance sheet debt by approximately 2.7 times (x). Cash and equivalents have exceeded debt since 2003. As calculated by Fitch, free cash flow over the latest 12 months (LTM) period ending March 31, 2009 was $19.04 billion. Fitch notes that even under the trough conditions presented in the first quarter of 2009 - with WTI crude bottoming out at just $43/barrel on average but service costs not significantly reset - ExxonMobil still earned $2.25 billion in free cash flow. Looking forward, Fitch expects the company will remain meaningfully free cash flow positive in 2009 under Fitch's current stress case assumptions ($40 WTI crude oil, $3.50/mcf natural gas).

For the LTM period ending March 31, 2009, ExxonMobil's EBITDA/interest coverage was 60x, while debt/EBITDA leverage was just 0.1x. 2008 E&P debt/proven reserves (excluding equity affiliate and syncrude reserves but allocating 28% of debt to other operations) was just $0.53 per barrel of oil equivalent (boe), according to Fitch calculations, among the lowest of all peers in the sector. 2008 reserve replacement was a respectable 103% on an all-in basis, while three year FD&A was a competitive $10.89/boe, well below upstream peers. Distributions to shareholders remain a sizable use of ExxonMobil's cash. For the LTM ending March 31, 2009, shareholder distributions were approximately $41.5 billion, comprised of share buybacks of $33.4 billion and dividends of $8.1 billion.

Despite their size, management has indicated that buybacks remain the flywheel in ExxonMobil's use of cash, and Fitch anticipates that buybacks will continue to be scaled proportionately in line with organic cash flows. The company's asset retirement obligation (ARO) is $5.35 billion and is primarily centered on upstream environmental remediation (well plugging). At Dec. 31, 2008 the funding shortfall across the company's U.S. and foreign pension funds totaled $15.37 billion. Expected pension contributions for the 2009 are $4.6 billion.

Downside risks to the rating are limited. While a very large transaction could in theory place some pressure on credit metrics if it were debt financed, Fitch does not believe this is a serious concern given the company's huge financial resources, its general reluctance to grow through debt-financed acquisitions, and its conservative track record in financing the few deals it has done (note the 1999 merger with Mobil was financed conservatively using stock and assumed debt).