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Exxon Girds for Lower-for-Longer Oil Prices

Exxon's move to cut capital expenditures is a departure for the firm and shows the company expects prices to remain low for an extended period, writes Morningstar's Allen Good.

Securities In This Article
Exxon Mobil Corp
(XOM)

Lower oil prices took a toll on

The sharp reduction marks a departure in strategy for Exxon, which prides itself on being able and willing to invest throughout the cycle. However, while the company is bullish on prices and demand in the long term, it has openly stated its view that prices are likely to remain low for an extended period, which is reflected in the decision to reduce capital expenditures. We look forward to the analyst day, where Exxon should provide greater detail on its strategy, given the collapse in oil prices, including longer-term spending plans and efforts to reduce costs. We plan to update our model with the latest guidance, but do not expect a material change in our fair value estimate or moat rating.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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