ExxonMobil's management team treats conference calls just like Bill Belichick does a press conference following the end of a game. Trying to get executives' opinion about where the oil market is heading or what they plan to do now that oil is cheap is like trying to get blood from a stone. But just because ExxonMobil management is tight-lipped does not mean these calls do not offer valuable nuggets of information. Here are four things from Exxonmobil's most recent conference call that management thinks anyone who invests the company should know.
We can't be bothered with predicting oil prices...Many of us try to invest in oil and gas companies based on crude oil prices and where they are headed. But this approach can be extremely shortsighted when looking at a company such as ExxonMobil that needs to make decisions about exploration and production that might take years -- decades even -- to develop. To do this, according toVice President of Investor Relations Jeff Woodbury, the company can't use oil prices as its measuring stick:
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Rather than getting caught up in trying to predict where oil prices will head over the next couple years, ExxonMobil instead looks at global demand over long time horizons and makes its investment decisions accordingly. If you plan on investing in a company such as ExxonMobil, then you should consider that time horizon as well.
... but we have to be ready for oil to be really cheapExxonMobil produces more than 2 million barrels per day of oil, but that is chump change compared to the 90 million barrels or more produced daily on a worldwide basis. Since oil supply is so segmented -- largest producer Saudi Aramco only has a 10% market share --Woodbury said the company must prepare for oil prices to do anything at any moment.
This "hope for the best, prepare for the worst" method to capital allocation has been a large reason why ExxonMobil has produced the best returns on capital employed among its peers for the past several years.
Keep the ship steadyIt can be tempting for a company that produces a commodity to shift its capital spending to accommodate for lower prices in that commodity. Such moves can boost profitability in the short run, but can have a major impact years down the road since the first projects to be cut are those in their nascent stages. According to Woodbury, though, ExxonMobil does its best to avoid falling in that trap; instead, it tries to maintain spending through down markets in order to thrive further down the road.
As long as ExxonMobil can maintain capital discipline through times of feast and famine, it should capture market rebounds much better than many of its peers.
When there's blood in the waterOne clear advantage ExxonMobil has over many of its competitors is a superb balance sheet. This gives the company the flexibility to take advantage of downward swings in the commodity cycle by making strategic acquisitions. This is one of those times, and Woodbury hinted the company is looking for those opportunities:
With a AAA credit rating and a debt-to-capital ratio of less than 9%, ExxonMobil has an immense amount of financial flexibility to seek out opportunities to grow reserves and production. This could prove incredibly useful if oil prices remain low and some companies with great assets but shaky balance sheets come with hat in hand.
What a Fool believesIf any company out there is ready to handle a long downturn in the price of oil, it's ExxonMobil. The oil giant's global footprint with assets in every aspect of the oil and gas game, as well as a balance sheet more secure than the Cheyenne Mountain nuclear bunker, makes it a great investment for those looking to build long-term wealth -- even if management doesn't come out and say so explicitly.
The article The 4 Critical Things ExxonMobil's Management Reminds Us About originally appeared on Fool.com.
Tyler Crowe has no position in any stocks mentioned.You can follow him at Fool.com under the handle TMFDirtyBird, onGoogle+,or on Twitter@TylerCroweFool. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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