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The company reported lower-than-expected fourth quarter 2011 earnings, mainly due to the weak production. Hence, we remain skeptical on the stock due to the company’s relatively low volume growth profile in the fourth quarter, which declined almost 9% year over year. We see ExxonMobil struggling to consistently increase production volumes over time.
The company’s struggling refining sector also remains our concern. The segment recorded a profit of $425 million in the fourth quarter of 2011 as against $1.2 billion in the year-ago period, hurt by weak margins and negative volume mix effects. ExxonMobil's refinery throughput also experienced a downfall in the quarter.
Moreover, although the XTO deal is expected to be a positive move for the longer term, we have yet to see any material benefit given continued weak natural gas prices and costs allied with the deal. With natural gas accounting for almost 48% of ExxonMobil’s 2011 production, we remain cautious due to the tempered outlook on the natural gas prices for the next several years. We believe this will adversely impact the company’s earnings, returns, cash flow and balance sheet.
On the flip side, ExxonMobil is the world’s best-run integrated oil company given its track record of superior return on capital employed. We believe that the super major will retain its leverage to higher oil prices going forward given its significant share in the upstream business.
While Exxon functions in all areas of the globe, the main places of focus for the coming years include the U.S., Canada, Kazakhstan, Nigeria, Australia, Russia, Angola and Iraq for new volumes. On the exploration front, it includes unconventional natural gas across North America as well as offshore regions, including the Gulf of Mexico.
On the financial side, Exxon maintains a solid credit profile. Its free cash flow generation remains strong, and the company is consistently returning it to shareholders. In 2011, Exxon returned $29 billion to shareholders through dividends and share buybacks, and we expect this to increase in the near term.
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