We maintain our Neutral recommendation on ExxonMobil Corporation (XOM - Analyst Report) given its track record of superior return on capital employed (ROCE), its extensive investment program as well as diversified operations. However, these strengths are somewhat undermined by its continued disappointing production trend.

ExxonMobil is the world’s largest publicly traded oil company, engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses.

The company has a track record of superior ROCE relative to its peers. It is in excellent financial health and has an AAA credit profile. Exxon’s free cash flow generation remains strong. The company returned $7.7 billion to shareholders through dividends and share buybacks during the second quarter, a trend we expect would increase in the near term.

ExxonMobil also remains active in its investment program and plans to spend about $185 billion over the next five years — up 29% from the last five-year period. The capex covers as many as 21 important oil and gas projects currently under the anvil and are estimated to accumulate over 1 million net oil-equivalent barrels per day by 2016.

Of the total, nine projects will begin in 2012 and 2013. These include the Kearl Oil Sands development project in Canada, four in West Africa and Kashagan Phase 1 in Kazakhstan. Exxon is also engaged in a large liquefied natural gas project in Papua New Guinea, which is expected to begin deliveries in 2014.

The company has diversified operations spanning the world. While it functions in all corners of the globe, the main areas of focus for the coming years include the U.S., Canada, Kazakhstan, West Africa, Australia, Russia, Angola and Iraq for new volumes. On the exploration front, it includes unconventional natural gas across North America and in offshore regions, including the Gulf of Mexico. Notably, Exxon achieved success in the exploration of a well in offshore Tanzania, where it came across a massive amount of recoverable gas of high quality.

Despite the collapse in natural gas prices, Exxon expects unconventional gas to play a dominant role in future supplies owing to the rapid decline in conventional production. The company possesses more than 8 million unconventional acres in North America.

However, we remain skeptical about the company’s continued disappointing production trend. Its second quarter 2012 production level decreased more than 5% year over year. The company also maintained that its oil and gas production would decline 3% in 2012 after a nominal rise of 1% in 2011. We see ExxonMobil struggling to consistently grow production volumes over time.

Again, with natural gas accounting for approximately half of ExxonMobil’s second quarter 2012 production, we remain cautious due to the tempered outlook on natural gas prices for the next several years. We believe this will adversely impact the company’s earnings, returns, cash flow and balance sheet.

At the end, we expect the company to perform in line with the market. ExxonMobil, the largest natural gas producer in the U.S. ahead of Chesapeake Energy Corporation (CHK - Analyst Report), holds a Zacks #3 Rank (short-term Hold rating).