A Two-headed Giant Dilemma
Some call Exxon Mobil a shining star. Others say its stodgy style cries out for a total makeover
For Exxon Mobil, it's not enough to deliver whopping profits. So many investors bolted when it recently reported 44 percent growth in first-quarter earnings--yes, 44 percent --that the stock fell to its lowest point in 11 weeks. Why the sudden exodus? Earnings were a nickel a share less than expected.
But Wall Street's high expectations for the world's largest oil company are nothing compared with the monumental goals set by the global oil market. In the past year, the corporate titan began pumping oil and natural gas from eight major new fields, including challenging projects in the deep water off Angola's coast, the icy depths of the North Sea, and the tough terrain of landlocked Chad. Yet Exxon's production continues to slip. Even these significant additions couldn't make up for the inexorable decline of the company's vast mature fields around the world.
On the one hand, the Irving, Texas-based monolith appears to be flourishing, surpassing its nearest peer, General Electric, earlier this year to become the nation's largest corporation by market value. But Exxon is denounced by critics as hopelessly mired in the past, blind to environmental realities, and hamstrung by an autocratic management style, embodied by its longtime chief executive, Lee Raymond.
So which is the real Exxon? A shining example of corporate excellence well positioned for the future? Or a lumbering giant headed for a fall? There's plenty of support for both views, simply because Exxon's fortunes depend on a commodity as volatile as it is vital to the world economy, oil.
Minting money. Of course, Exxon's hallmark is its conservative approach, one that the company says helps keep it atop the heap through all of the industry's ups and downs. "Our organization and our strategies are designed to see through the market noise created by short-term fluctuations," Raymond told Wall Street analysts earlier this year. (Exxon declined requests for an interview for this article.) Although the style may seem "boring," he said, "You'll just have to live with outstanding, consistent financial and operating performance measured in the same transparent way we've done for the last 20 years."
Over that time, business has rarely been as good as it is today. With oil averaging more than $50 a barrel this year, oil companies have been minting money, none more quickly than Exxon. Its $82.1 billion first-quarter revenue is greater than the total annual economic output of most countries. Its $7.9 billion profit easily topped that of its competitors. The company is amassing cash at an astonishing rate; its hoard swelled from $23 billion to $30 billion in just the first quarter. And much of that money is going right back into the company. Exxon is buying back its stock at its fastest pace ever, spending $3.5 billion this quarter alone.
With worldwide demand for oil skyrocketing, however, some critics say Exxon should be spending that cash ferreting out new oil sources. Last year, overall capital spending was down 4.1 percent, to $14.9 billion. That means it is spending less on exploration for new prospects at the same time its older fields, like those in North America, are in a natural decline. The company's production eroded nearly 5 percent in the first quarter, a rate that surprised analysts and caused Exxon to miss earnings projections.
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