Breakingviews: Exxon Stock Isn’t So Slick

Exxon Mobil’s strategy has yet to deliver returns. Despite a rise in global crude prices, the world’s largest listed, independent oil company missed earnings expectations in the first quarter as production declined. Exxon’s focus on long-term projects may eventually pay off. But investors seem less confident and competitors are passing it by.

The $340 billion oil major did manage to grow earnings by 16 percent compared with the first quarter of 2017, but that’s nothing to shout about considering that crude prices were nearly a 50 percent higher than this time last year. By contrast, Chevron on Friday reported a 35 percent rise in earnings while Royal Dutch Shell on Thursday posted a 42 percent gain. Exxon’s more than 5 percent decline in production explains much of the shortfall, as the company’s focus on longer-term projects in areas such as Brazil and Guyana have yet to deliver.

Exxon has spent the last several months trying to explain its strategy to investors who are growing impatient. Other bumps in the quarter show that shorter-term projects are needed to fill the gap until it can fully extract oil from its deeper well projects. Pipeline and rail bottlenecks in Canada hit sales of crude coming out of the region. An earthquake in Papua New Guinea took an LNG project off line temporarily.

The company did boost output by 18 percent year over year in the Permian and Bakken regions of the United States. It’s just catching up in shale drilling, though. Chevron, which has focused on U.S. growth for several quarters, had strong numbers.

The price of Brent crude, the global benchmark, has rallied to around $75 a barrel, but it may not stay there until Exxon’s projects come to fruition. Investors still remember when crude dipped below $30 barely two years ago.

Exxon’s stock is grossly under-performing too, and has been for years. Shares have delivered a total return of around 1 percent annually over the last five years, falling far short of both the S&P 500 and its Big Oil peers. At the same time, the company’s return on capital employed has fallen from over 25 percent in 2012 to 9 percent in 2017. Investors may grow tired of waiting for even a mediocre boost.

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