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Home » Should You Buy Exxon Mobil Stock? What To Consider First

Should You Buy Exxon Mobil Stock? What To Consider First

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We live in very unusual times. While there have been various conflicts around the world after World War 2, there remains a sense of stability and the creation of wealth. Many investors who invest for the long term on Seeking Alpha have tales of high-quality cash flows over the long term through your Exxon Mobil (NYSE:XOM) share dividends. There are plenty of “buy and hold investors in the XOM market. The energy sector has experienced its bumps and valleys, but the cash rivers have flowed. The rapid rise of the super rich and disappearance of middle-class people has altered the world, with what used to as essential things like homeownership now unapproachable for many. Investment in fossil fuels has increased in risk, and has brought extreme challenges during the COVID pandemic when transport almost was shut down. The impact for companies such as Exxon Mobil was traumatic. After COVID’s elimination (although the SARS-CoV-2 virus may not yet over) there’s been a sense of relief and determination by Exxon management that the latest challenges are all part of the normal cyclic characteristic of the fossil fuel business, which they believe is due to the mismatch between supply (projects require a lengthy time to develop) and demand. A lot of people in the sector of fossil fuels (including Exxon management in particular) remain steadfast in refusing to accept that the world is shifting and that we’ve come to the final phase of the process of exploitation of fossil fuels. This is due to convergence of the need to reduce carbon emissions (due to an emergency in climate change) coupled with significant advances and cost reductions in the field of renewable power generation. All of these factors indicate that there are significant and irreversible changes afoot. Although XOM management isn’t willing to acknowledge this, it’s essential that investors who are considering investing in the company consider the changing landscape of energy and also for existing investors to evaluate whether or not their XOM portfolio is really the right place to invest their money. I’ve written a number of articles about the various aspects of investing in XOM. In this article, I will discuss additional issues that continue to make me cautious about investing within Exxon Mobil at this time.

Buy when there is despair not joy

Stone Fox Capital made the intriguing observation recently that the analyst community, although generally positive or neutral about XOM (5 strong buy four buys 17 hold, only one sell out of 27 analysts over the past 90 days) however, has difficulty setting price targets higher than the current price. While XOM is within reach of its record-setting price, there’s general skepticism and even malaise even at the top of the business. If the market were this good, it would be a perfect opportunity to take a positive outlook. Instead, management is building up its cash reserves (to the tune of $20-$30 billion ) and is even saying that the good times might never last) and is implementing 30 billion shares to buy back under the program that will run through 2022 and 2023. It’s not surprising that the company seems to be going very slowly in the implementation of this program. why would they want to buy back shares at such high prices?

With all this in mind, I find it difficult to think of a reason to buy XOM right now.

Exxon Mobil and Australian natural gas price

The Russian invasion has caused disruption in energy market across the globe and the results are felt across the globe. In Australia one sees the effects of a controlling gas and oil industry on the prices of natural gas in the country. As opposed to Norway that has a monopoly on the extraction of its fossil fuel assets and because of this, the country has the world’s biggest state-owned wealth funds, Australia has largely submitted to the demands of fossil fuel industry. This is evident as a result of the current crisis in East coast Australian natural gas pricing, which is tied to the international gas price. The impact of this can be observed when the price of natural gas in Western Australia is considered. In Eastern Australia natural gas prices have increased from $A6-12/Gigajoule at around the time of beginning 2022 up to $A50/Gigajoule by May. This amounts to electricity rates of ~$A300/MWh.

Western Australian natural gas prices are not rising. This is due to a an unusual political reaction against the natural gas industry, and Exxon seems to have been an important player in the way the reserve allocation for domestic use was divided within Western Australia. The narrative goes that there was an Exxon Mobil delegation was uncompromising on the issue of no local allocations, but the gas supply must be available for exports out of West Australian gas projects. According to the story, WA’s Premier WA declared “no agreement” in response to the request. Exxon Mobil left with no deal, only to return shortly after having agreed that a state-wide carved out for natural gas supplies could be accommodated.

The East coast Australian tale of being abused isn’t atypical There is the same story that is happening in Guyana in which the Guyanese government has been unable to stand up to the complex and arduous XOM negotiations in different ways. The story seems depressingly familiar of a huge corporation that controls the negotiations to unfairly favor the government.

I’m not convinced that this unbalanced position in negotiations will last in the future. This is yet another reason to be cautious regarding the future of XOM.

Natural gas and climate goals exploitation

The underlying concept of XOM’s business plans is the rapid expansion of production of oil and gas. This ignores the need to lower carbon emissions throughout the world. Governments (195 of them committed to achieving Paris Agreement climate targets) across the globe are aggressively increasing investment in renewable energy sources. Each new solar PV or wind power project is a threat to the power generated by gas and coal. The issue is not an issue of technical nature however, it is a political one. In a nutshell , the fossil fuel industry is now publicly soliciting actions to stop the massive shift towards renewable energy. This is now a big talk point across the world even when the Russian invasion of Ukraine brings the supply of fossil fuels in Europe to a halt.

I’ve looked at recent climate data and the need to decarbonize in a previous article. My conclusion is that the dangers of the supply of fossil fuels and price volatility is a significant issue everywhere, in Europe, Asia and the Americas. Exxon Mobil’s claims that its products cannot be replaced is under question since renewable energy is viewed as a potential solution. An enormous shift to investing in renewable energy is a cautionary signal for the business of Exxon Mobil.
Transport electrification

Above I’ve indicated issues with the model for business of XOM based on expansion of natural gas extraction. What’s the future for oil? Transport consumes ~45% of oil production, so there is a chance to significantly reduce emissions by electrifying transport. In BP’s (BP) year-end energy projections for 2017 it was predicted that penetration of electric vehicles by 2035 would be 6 percent. Fast forward to 2021 and massive electrification in personal transport is taking place. The statistics for Norway nearly 86% all new car sales were electric in 2021. Similar numbers for Iceland (72%), Sweden (43%) and Netherlands (30 percentage) are staggering, and In China in 2021 16 percent of new car sale were electric. The primary driver behind electric vehicle sales is the recognition of the need to cut CO2 emissions.

The CAGR for electric vehicle sales between 2016 until 2021 was 61% in Europe with 58% of the sales in China and 32% in the US. Five times more electric vehicles in 2021 as compared to 2015.

It takes time for electrification of transport to make the desired impact. However, it is becoming more rapid. Of the major manufacturers there is only Toyota (TM) has a plan to sustain production for the long-term of the internal combustion engine. There is no evidence to suggest the Exxon Mobil management accepts what is becoming clear. There will be an impact on oil consumption soon. The most important question I have is when and how will disbanding of the legacy ICE (Internal Combustion Engine) fleet be handled?


In this article I’ve discussed a variety of issues that should be considered by investors when making a decision about the investment of XOM at this time. There is a mix of both short and long-term issues that matter today. In the longer term, I believe that XOM’s permission to operate is being scrutinized in a way that previously the company has been able to avoid. The Exxon stock forecast 2025 isn’t looking too good.

The bigger issue concerns energy pricing and the role of renewable energy projects to alter the parameters in favor of energy production which is controlled locally rather through far flung or unreliable (e.g. Russia) sources. This is the perfect moment to think about the evolving energy landscape and also think about other investment possibilities. Clearly solar PV and even wind (especially offshore) are emerging as the major investment opportunities are emerging. Why invest in an area that is likely to be shut down? Of course , there’s the potential to earn money in an industry in the process of being shut down but it’s more of a risky investment than an industry undergoing massive expansion.