$XOM has strong support and only has room to move higher. The headwinds faced by Exxon are pretty obvious, they produce oil and people have been travelling less since COVID began. However, XOM also has its fingers in upstream, downstream, natural gas, and chemicals. I do not trade CL and know next to nothing about O&G, but that is not going to stop me from posting some borderline shit tier DD. I’ll address the fundamentals, namely addressing the top criticisms of XOM that I have been seeing most recently: They are no longer in the Dow Jones
: who cares, we aren’t octogenarians. The EV/Green threat
: The people who have been bagging on XOM seem to think oil is their only business and that the popularity of EVs is going to kill the industry. EVs currently make up less than 2% of vehicles on the road in the US. Exxon knows that the shift toward green energy has started, but it will take decades to lay down an infrastructure to rival our current energy pipeline. After all, this is Exxon, the company that warned
itself about global warming fifty years ago. Additionally, even if first world countries are the first to make the leap, the demand for oil in developing economies isn’t going anywhere anytime soon. Furthermore, a major competitor in BP decided that XOM was a dinosaur and they were going to become a utility instead. Good luck with that BP. Political threat
: Right now, the political crosshairs are squarely on fracking. This has hurt long time S-tier companies like Schlumberger who recently sold its entire NA fracking business. However, that threat seems to have been overstated. Biden has made some confusing and contradictory remarks regarding fracking. However, his written plan only calls for the "banning new oil and gas permitting on public lands and waters" -- not ending all new fracking anywhere or those existing on public lands. In short, a nothingburger. Political threat, Pt. II - subsidies
: That said, Biden has also hinted that he would end subsidies to oil companies. I assume he was kidding here, as this would lead to the most regressive policy I can imagine. Subsidies in the O&G industries are not the US Treasury writing XOM, BP, etc. big checks every year – they are taxation avoidance mechanisms such as percentage depletion, and tax deductions. Drilling for oil is not an exact science. Presumably, the government understands this. When you spend millions drilling a dry hole there should be way to write that cost down. These subsidies ensure that companies in the US continue to provide a strategic resource for the US. They have existed for over 100 years in the tax code because there has long been the recognition that we need to keep the industry alive for a multitude of reasons – the paramount of these being energy independence. If Biden were serious about amending the tax code to remove tax preferential status to O&G producers we could face one or both of the following: (1) US surrender of energy independence, and/or (2) crushing increase in pump prices which would adversely affect low income people (presumably Democrats). Not only would elimination of subsidies imperil the country, it would be the least politically expedient move if the Democrats hope to expand their base. Those inroads they made in Texas will not mean a whole lot if the O&G industry burns down and people will be less than impressed when they are seeing $5/gal at the pump. However, some studies suggest that removing these tax benefits would lead to negligible decline in oil production and negligible reduction in oil consumption with minor increase of cost to the consumer.
Complicating this issue is that several industries benefit from these sections of the tax code, which would result in other lobbying efforts against their modification. Finally, even if Biden were serious about attacking these subsidies, he would need to have the political support to change the law which he simply will be unable to do regardless of what happens in the Senate: in scenario A – the Republicans keep the Senate and nothing happens; in scenario B – the Democrats take the Senate, but infighting on energy issues prevents anything from happening. There is a very real schism between progressives and blue dog Democrats as things stand and unless those issues resolve in short order in scenario B, I cannot imagine the subsidies being in real jeopardy. Political threat, Pt. III - Harris
: If Harris becomes president oil will look bullish to me as every post-apocalyptic movie I have ever seen has fire barrels everywhere, which are presumably fueled by gas and wood. This is also a bull thesis for $LL to the extent that they sell untreated wood. Company bloat
: As one of the big boys, XOM has been justifiably criticized for its employee size especially in a down year. XOM had more than 88,000 employees (~13k of which were contractors) at the beginning of the year – they are laying off nearly 2,000 people in Houston, 1,600 in Europe and have publicly stated that they may lay off as much as 15% of their global workforce. Who is getting let go? In the US, people from the management. They announced the cuts at the same time that they announced the dividend was safe at 9.65%. XOM has stated that they are moving to prioritize the highest value investments, namely: Guyana developments, Bacalhau deepwater, maintaining exploration outside of the US, pacing short-cycle growth in the Permian, optimizing non-US natural gas, and progressing on their chemical plants in Texas and China. They have met their target decreases in capital expenditure by 35% and have forecasted continued production growth for next year. In short, XOM is going lean. Debt
Those are the problems that people keep posting about on fool and other boomer sites, which in my opinion are overblown. Now the good: Oil consumption
: This is the elephant in the room. Demand died with COVID, but so did production to a lesser extent. Brent prices averaged $40 in October – with global consumption of 95.3M b/d, which was down nearly 6M b/d from last October, but up nearly 10 b/d from the Q2 2020 average.
The EIA forecasts that WTI will average $38.24/b through the end of 2020 and $44.24/b in 2021. It currently sits at $41.47. Not enormous figures, but the market is speculative and oil is a cyclical industry. Projections regarding production have been bullish and all indications show demand is picking back up. Dividend
: The Q3 call confirmed that the 2020 dividend with a massive 9.65% yield was safe. Furthermore, the call assured investors that the quarterly dividends would be protected in 2021. Of course, this came to the detriment of laid off employees who have expressed their frustration that they lost their jobs so that shareholders could capture $.87/sh. Whether XOM will incur debt to pay their next dividend is not clear - if WTI hits $55/b they would not need to take on any additional debt. TA
: I donno, looks good to me man. https://preview.redd.it/9h7qrdmlwoz51.png?width=1882&format=png&auto=webp&s=4399fd71e51755494ee6461da205c2251b7cf7fe TL;DR
: Fears over XOM and the O&G industry are overblown. We need oil to make cars go. We need oil to make other things like tires for cars. We also need chemicals - XOM makes those too. More people are driving cars and we just neared 90% of where we were this time last year in terms of insured daily vehicle use. Some competitors are exiting leaving more room for XOM. Subsidies are safe. Dividend is safe for next year. Buy equity and collect dividends if you want to stay in your safe space. PT for me is $60 by EOY 2021. Position