While it was once the most valuable public company of the world, the largest oil company of the United States ExxonMobil is now on a steady decline path.
Since the company’s market valuation peaked in 2014, it has lost a staggering $184 billion from its market valuation. That is the same as the entire market value of Boeing and about one and half times that of Tesla.
The company on Thursday posted very discouraging results which clearly showed that the turnaround for the company will not happen in the near term. That brought down the stocks of the company to a nine year low.
None of the major business of the company are performing at their full potential and the recent struggles of the company are a result of a multitude of factors – not all under the company’s control. Lower oil prices have sustained for a quite a few years since 2014 and so has the price of natural gas. Profits margins for its huge massive chemical business have also come down drastically. There is pressure on its refining business also.
Even though the United States had recently attained the title of being the largest producer of both oil and natural gas in the world, the drastic fall in the market value of Exxon is a reflection of the broader problems facing Big Oil. The very shale boom that has propelled the US to become the largest producer of oil and natural gas has also caused its prices to drop drastically.
“Sentiment towards oil companies is as bad as it’s been in a long, long time,” said Ben Cook, a portfolio manager at BP Capital Fund Advisors.
The decline in prices of oil and natural gas also shows the impact of the rising concerns for climate change. The increased concerns about carbon emissions and the rise of socially-conscious investing have hit energy stocks.
“Fossil fuels have a PR issue,” said Cook. “As long as the market perceives them to be the culprit for carbon emissions, they will have a difficult time.”
However, despite these factors, the stupendous decline of the market value of Exxon is dramatic because it was the world’s most valuable company as close as in 2012 when it was overtaken by Apple.
One of the major problem for Exxon is that there is a limit for how much it can spend – particularly since it seems to be committed to continue to pay out the generous dividend that its shareholders simply love.
Of late, the company has had to resort to selling of its assets and accumulating debts in order to keep paying the dividends. The company has raised its dividends to shareholders for 37 continuous years.
According to a report by the Institute for Energy Economics and Financial Analysis, the company had to provide cover for 64% of its dividend in 2019 using funds from sale of its assets and borrowed money despite its “deteriorating financial conditions”. That is much more than the 10-year average of the company of subsidizing about 30% of the dividends that it pays.
“The one thing that keeps investors tethered to companies like ExxonMobil is its quarterly dividend checks,” IEEFA wrote in the report. “It is a dividend that requires crutches.”
Hence, it seems that unless there is a dramatic turnaround in the global prices for oil and natural gas soon, the woes for the one time most valuable listed company of the world is set to continue.
(Adapted from CNN.com)