Exxon Mobil has been one of the dogs of the Dow Jones Industrial Average this year, but 2020 will be a different story, according to a Bank of America analyst who named the energy giant his top major oil pick for 2020.
The Irving, Texas-based company, whose shares have risen less than 1 percent this year, is the fourth-worst performer among the 30 members of the Dow Jones Industrial Average, according to Dow Jones Market Data.
Like its rivals, Exxon has been pummeled by low crude prices, but Bank of America analyst Doug Leggate expects it will benefit next year as higher production makes up for oil hovering around $54 a barrel, down from a 2014 peak of about $107. Leggate expects Exxon shares to surge 47 percent to $100 in 2020.
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An inflection point in Exxon's production in the oil-rich Permian basin, located in the southwestern U.S., "is well underway," and the first oil production from operations in Guyana, confirmed for December, "kickstarts what we expect to be seven to eight years of growth,” Leggate wrote. The two developments will help lift cash flow by 50 percent from 2019, he said.
Exxon said earlier this year that it expects its Permian Basin output to grow by 80 percent to 1 million barrels per day by 2024. In September, the oil and gas company announced the discovery of more than 6 billion barrels in the South American nation of Guyana. Output is expected to reach up to 120,000 barrels per day.
During its March 2019 investor day presentation, Exxon said it is planning to sell up $25 billion in assets by 2025, and recent media reports suggest the company is speeding up those efforts.
The media reports align with Leggate’s belief that the “magnitude and timing of non-core disposals could exceed Street expectations,” which means Exxon may beat its goal of doubling cash flow by 2025.
He added that analysts and investors are overlooking that asset sales are “much less about near-term balance sheet management than it is about portfolio high-grading as resources are deployed to a new generation of products.”