Exxon Mobil (XOM)

Exxon has worked on developing alternative energy technology. The company, which has big plastic and chemical operations, isn't keen on the long-term prospects for biofuels, but it is bullish on the hybrid market.

Exxon isn't stupid. It's not the largest company in the world, in terms of value, for nothing. Exxon knows that, even as it spends money on oil and natural gas exploration, certain tides are changing. Exxon, instead of betting on biofuels, thinks that future is the hybrid car market. That's why Exxon has been working on better lithium batteries since the 1970s.

Exxon doesn't actually make the batteries. Rather, Exxon scientists are developing ways that the batteries could withstand higher temperatures (the main problem with lithium batteries is that at some point they explode). Exxon's design is used in a large number of lithium cellphones and other electronic device batteries. Now, Exxon is paying scientists to improve lithium battery technology in order to make it a practical replacement for the bulky, less efficient nickel-metal hydrid batteries that are currently used in hybrid cars. Exxon wants a share of the hybrid car market by selling its technology to Toyota (TM), Ford (F) and other makers of hybrid cars.

Whether you agree with Exxon's environmental record or not, there's no denying that the company has made some very savvy business decisions in the past. This decision is no different. Exxon isn't moving in a green direction because it cares about going green. Exxon is doing it because the company cares about making money. And, if Exxon continues to push the hybrid car market, the company is likely to continue to do well. After all, a hybrid car with a lithium battery designed by Exxon would be a double win for the company -- it still needs gas, but even though it won't need as much, the battery will make up some of the difference.

Exxon Mobil (XOM) is announcing that it is selling more than 2,000 of its gas stations. This move is part of Exxon's movement in a new direction to become leaner, and more efficient, focusing more on energy production than on the retail side of things. However, Exxon still plans to keep its brand name out there. The Wall Street Journal reports on plans for Exxon's gas stations:

That won't mean the end of the Exxon Mobil name on gas stations. The company expects to sell most of the stations to distributors that already own and operate about 10,000 other stations that carry Exxon Mobil signs and are supplied on a wholesale basis by Exxon Mobil.

The gasoline retail business operates on tight margins, and Exxon wants to be able to focus on other aspects of its business. Besides, Exxon is hardly the first to start easing out of the gas retail business. BP (BP) and Shell (RDS-B) have both sold gas retail stations. Indeed, most of the money made is through extraction and refinement of oil.

And with XOM focusing more on the things that make money, and trimming the things that don't, the company is likely to continue to rake in record profits.

Exxon is well-positioned to take advantage of the increase in demand for oil and gas and rising energy prices.

One of the challenges faced by Big Oil is finding new oil reserves in countries that are not hostile to US concerns.

Stability of countries containing oil reserves is also an issue. Problems in the past year in the Middle East, Nigeria and Russia (BP is especially feeling the heat in Russia ) all underscore the problems faced by Big Oil with regard to locating new sources of oil. This is why a $75 million investment by Exxon Mobil (XOM) in Hungary looks to be a good move for the company. Yahoo! Finance reports on XOM's latest oil exploration deal:

The deal is between Falcon subsidiary TXM Exploration and Production LLC and Exxon Mobil affiliate Esso Exploration International Ltd. Exxon will have a 67 percent stake in a contract area licensed by Falcon covering about 184,300 acres.

Oil prices are increasingly volatile and oil reserves are increasingly difficult to come by. This move by XOM, if oil is found and production can be implemented, would be yet another savvy move by the world's largest company by value. Even though XOM (like the entire energy sector -- the entire stock market for that matter) was down on Friday, the company still remains fairly strong in fundamentals. Most of the company's business decisions are solid and focused as much as possible on the bottom line.

And, since focus seems to be more on finding more sources of oil than on looking for alternative forms of energy, XOM is well-placed to continue reaping the benefits of business model that has served it so well for decades.

Exxon has done a great job of horizontally integrating their businesses so that oil price moves 'balance out' across the enterprise. High prices are good for exploration, bad for downstream petrochemicals and similar businesses; and the reverse is equally true. This creates a stable cash flow that supports an unmatched budget for investing in new oil fields and in downstream capacity.

Exxon calculates all of its projected profits assuming that crude oil goes for US$ 51 per barrel. So with crude oil prices currently hovering around $100-some per barrel (averaging around $100, lowest point not falling below $50 a barrel for just a few days in January 07), Exxon will almost certainly continue to report profits that are higher than expected. Unless crude oil takes a real nose dive and comes in significantly below $50 (which it hasn't done for two years), Exxon's got nothing to worry about beyond slimmer (rather than super-fat) profit margins.

(I did some extra research for this post, but thanks to CrossProfit's posting on SeekingAlpha for this idea.)

Technological advancements will allow the company to efficiently and profitably develop and find new energy sources.