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 is well-positioned to take advantage of the long term increase in demand for oil and gas and rise in energy prices. Although the past few months have seen a drastic fall in oil prices, economic growth begets greater demand for energy. Oil futures are still optimistic that prices will rise within the next few months, although not to levels that Exxon would like.
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.
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.
When XOM bought XTO in December 2009, they bought one of the world's top independent nat gas producers. It's return on invested capital in 2009 was the best among all nat gas companies. If the spot price of nat gas gets anywhere over $7.00 per MMBtu, XOM will break all it's profit records from a few years ago.
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.
agreeing with pretty much every comment made by contributors in the Bulls ring, below are a few technical PRICE 2 PRICE comparisions
2006 oil price - around $65
2006 Exxon share - around $70
2008 oil price - around $80
2008 Exxon share - around $70
2010 oil price - $180+ ( based on 3 investment banks advise on global outlook )
2010 Exxon share - $120+ ( based on nymex outlook )
the trend and forecasts for 2010, just to clearify, have not been plucked out of thin air.
Nymex futures, Economic demand rebound and 3 investment banks internal memo have provided base for these forecasts.
Utilities have a large portion of their electricity generation in aging coal fired plants that need to be replaced / retrofitted to meet current and future clean air standards. Also, increasing development in Brazil, Russia, India & China, etc. will increase electricity demand in those countries. As environmental standards tighten, electric cars become more prevalent, and BRIC countries increase consumption, natual gas demand will skyrocket. XOM is the leading producer of natural gas in the U.S., has very low production costs and is a leader in Liquified Natural Gas shipment. XOM should benefit disproportionately when gas prices recover.
According to Michael Dolan, senior vice president of Exxon, “Algae-based fuels could help meet the world’s growing demand for transportation fuel while reducing greenhouse gas emissions.”
They’re not the only one to think this a good idea though. One of the more prominent members already in the game is none other than Royal Dutch Shell Plc, Europe’s largest oil company by market value. But as things stand now, it’s more of a race, as all parties involved agree that any marketable results won’t come around for some time.
The reasons why such a solution would be preferable to oil-based fuel are obvious of course (infinite resource since it can be grown, less expensive since it isn’t finite, and cleaner), but it’s got an edge on other biofuels as well, since supply could match demand without infringing on land for other crops.
While Exxon is pledging as far as into the billions if necessary, we’ve seen where other biofuels have taken us, and it isn’t very far. Whether or not algae can put the company, investors and consumers in general on the road to success is a question we won’t be able to answer for a while.
Oil prices have more than doubled moving above $70 per barrel in the beginning of June 2009, after dropping below $35 per barrel in February. This represents a rally of over 100% over the last 80 trading days. This is nearly double the highest 75-day rally during the last large oil movement from December 2001 to April 2002 rising 55%. Even with drops in demand in some markets the increase in prices should continue to be supported by demand from high growth areas such as China and India. In January of 2009 China became the world's biggest automotive market, overtaking the US. Notably in April of 2009 car sales in China rose by 37% due to recent tax breaks.
For all the talk about renewable energy and global warming, the actual data paints a different picture (albeit a bleak one for environmentalists). Of three models used to analyze climate change and energy usage in the future, one from MIT, another developed jointly by the Pacific Northwest National Laboratory and the University of Maryland, and a third created by Stanford University and the Electric Power Research Institute, there is agreement that fossil fuels will supply 70% to 80% of the worlds total energy by 2100, vs. about 90% today. 70%-80% is HUGE.
Exxon calculates all of its projected profits assuming that crude oil goes for US$ 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.)
USA will become an exporter of natural gas and there is a high possibility that a portion of the US Auto and truck fleet could be running on NG in the future. The infrastructure is already there and in place. Exxon is quietly buying up all the major NG players. They know what's coming.
Exxon-Mobil is big enough that any significant threat will be eliminated. There are many ways to do this. The company or technology could be bought outright. Congressmen can be lobbied to pass legislation which keeps the threat at an economic disadvantage. Markets, such as the price of oil, can be manipulated (as we recently witnessed during 2008). The users of oil and their executives can be given "incentives" to continue using oil. Exxon-Mobil has unimaginably significant resources to achieve its ends; it was the first American company to achieve $10 Billion in net profit in a single quarter.