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Quick thread on $XOM. @asymmetricbets put out some charts looking at $XOM and energy trends
$XOM is a fascinating case study - today hovering just a hair above it's 17 year lows
$XOM is a fascinating case study - today hovering just a hair above it's 17 year lows
Below, is $XOM Cash from Operations compared with Capex & Dividends for the last 20 years. Simple operating cash in - cash out
Breaking it down further: Cash Flow - Capex. In the good old days, $XOM was generating $5-10B/qtr more cash from ops than it spent on capex. After '14, coverage dropped to $0-5B/qtr til '19.
'19-'20: $XOM spent $0.4B more per qtr than it generated from ops
'19-'20: $XOM spent $0.4B more per qtr than it generated from ops
That's all before dividends. $XOM has dogmatically stuck to its history of raising dividends annually despite marked deterioration in underlying fundamentals. Dividends now costing $XOM over $3.5B per qtr
Here's the net of Cash From Ops - Capex - Dividends. 2001-2014 $XOM generated avg $3.5B free cash flow per qtr. 2015-2020 average -$2B/qtr. 2019-2020 it's worse at -$3.5B/qtr
How have they been navigating an operating environment that costs them $3.5B cash per quarter? Asset sales & debt additions
Swinging XOM's balance sheet from negative net debt (-$31B in '08) to rather leveraged today ($56B). Total corp production has dropped from almost 5 mmboe/d to ~3.8 mmboe/d
What can they do? The market has clearly sniffed out that the dividend is not sustainable. Yield is now over 10%
It’s reminiscent of $COP in 2016. Dividend was not sustainable & market knew it. COP cut it from 74c to 25c in 1Q16.
$COP went down 15% on the 2/7/16 dividend cut anncmt. But it eventually recovered in the rally alongside the rest of the sector
$XOM in a different position tho, almost unique in the market; certainly unique within energy. On 2Q20 earnings call, they reported that “something like 70% of our shareholder base is retail investors”
It is hard to overstate the disincentive that serves as to a dividend cut
It is hard to overstate the disincentive that serves as to a dividend cut
Simplest course of action, is for $XOM to keep selling assets where they can ($1B potential sale for UK fields making headlines lately) https://www.reuters.com/article/us-exxon-divestiture-britain/bids-for-exxon-uks-oil-and-gas-fields-due-on-october-28-sources-idUSKCN26C1HT
And to backfill cash flow needs by continuing to add more and more debt at remarkably low coupons (new notes at +/- 1% coupon issued in 2Q20). Of course, and keep waiting/hoping for commodity prices to improve
That’s not much of a strategy shift though. So hard to see, absent commodity rebound, how that improves XOM situation with respect to broader market in general or energy sector in particular
