ExxonMobil (XOM, Financial) delivered a solid performance in the recently reported fourth quarter. It posted an impressive increase in the earnings and revenue. It is interesting to know that, even in this soft commodity price cycle, ExxonMobil still delivered impressive numbers. This mainly came in on the back of its integrated business model. However, analysts are worried about the declining oil prices and are expecting them to fall further in future. This can further expose ExxonMobil to some headwinds which can be a hurdle. But the management is laser focusing on some key projects that can help ExxonMobil stay profitable even in this soft commodity pricing market.
The way ahead
The company might face headwinds due to moderate growth in the global economy. Due to this Exxon has seen a decline in its expansion as compared to 2013. China, Europe and Japan are among its potential markets, but the company is also disappointed by weak economy in these markets. Further, according to the recent forecasts, the energy prices are expected to decline further in the future quarters which can also erode its margins.
Despite these headwinds, ExxonMobil is focusing on production and reducing the costs to secure better margins in the future. In the league of the potential projects the company has huge expectations from offshore Sakhalin in Russia. This is expected to reach new highs in terms of production to 90,000 barrels which might bring the total production at Sakhalin-1 to 200,000 barrels per day.
Expanding in key areas
Moving on to Canada, Nabiye, which is an expansion of existing Cold Lake field, is expected to ramp up the yield further after the steam soaking, leading the first Bitumen production from it. One of the greatest achievements of Exxon is its reach in the Middle East oil fields especially upper Zakum in Abu Dhabi, which is one of the largest oil fields having a capacity of 50 billion barrels. In order to be more profitable even in the soft oil pricing environment, Exxon with its joint ventures is now progressing to re-develop the field by raising its gross production capacity to 750,000 barrels per day.
This is expected to add more value to its growth story and can support its smooth movement in this market environment as well. As it seems to be a wise move, Exxon will continue drilling for three years more to reach its targeted production, strengthening its position in the market.
Exxon is worried about its long-term prospects to be profitable in the long term as well; it has also undertaken broad exploration programs. Under this it has pinpointed some areas where drilling program and testing is still going – for example in Pelican South, wildcat well in Neptune block offshore Romania. Another important side of this coin is that Exxon has already drilled and tested two wells in Vaca Muerta. These are among the best producing wells, and Exxon continues to further explore opportunities in 2015.
Moving ahead, recently Exxon has also added high potential acreage to its diverse exploration portfolio. Under this, Exxon has captured three blocks which are a new opportunity for Exxon to build on its 17 success with Hibernia, Terra Nova and the ongoing development at Hebron.
Conclusion
The stock looks cheap with a trailing P/E of 11.53. The company with a forward P/E of 16.48 is showing solid earnings growth in the near term. An impressive profit margin of 8.80% can also be helpful in attracting more investors. Exxon is striving hard to be profitable, and it is showing good signs of growth in the near term so as of now ExxonMobil is a good pick, and investors should definitely include it in their portfolio.
