Fueling North America’s Economy
With a forecast of strong growth in global energy demand, the company has budgeted an unprecedented $150 billion over the next five years to find new, unconventional sources of supply, as InvestorPlace’s Aaron Levitt wrote about in “Exxon’s Massive Spending Plan Looks Right on the Money.”
“The new sources of oil and natural gas our industry is developing here — and the way in which we are developing them — will shape their development on a global scale,” Tillerson told attendees of the CERA Week conference in Houston last week. “When combined with the development of Canadian oil sands and Mexico’s resources, U.S. unconventional oil and natural gas are fueling the North American economic engine, and revealing the value of sound policy in energy progress.”
Tillerson has been a vocal critic of the Obama administration’s opposition to some key projects — most recently the Keystone XL pipeline that would have moved crude from the Canadian oil sands to the Gulf Coast. “The unfortunate decision to halt progress on the pipeline was a product of political calculations in Washington — negating the work of hundreds of hours of public hearings,” he said. “In the end, it was also a disservice to the public employees who carried out their responsibilities as regulators in this process.”
While Tillerson is a strong advocate of using fracking technology to tap unconventional energy fields, he recognizes that it’s controversial in many circles — particularly in natural resource-rich Europe. His solution: a disclosure program about fracturing.
Bottom Line: At the end of the day, Rex Tillerson is an oilman with a second major in natural gas. He’s not the guy who will paint ExxonMobil green and reinvent the energy giant as a big alternative energy player. This focus affects shareholders two ways: in returns and socially conscious investing.
With a market cap of $407 billion, XOM is trading in the $86 range, only 2% below its 52-week high last May. It has a current dividend yield of about 2.2%. Tillerson’s company will face headwinds in the short run due to the current overcapacity in natural gas. Expect more opposition to the fracking technology by U.S. policymakers and citizen groups as well.
Nevertheless, XOM’s fortunes will rise along with the growing demand for energy. So this is a good long-term play, even though I’d prefer to buy it at $82.
Many socially conscious investors, though, have a big problem with Tillerson’s fossil-fuels-first philosophy. Groups like Green America believe the company’s “apparent success is based on a dangerous disregard for the planet and its people.”
Of course, other oil companies like Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP) and Royal Dutch Shell (NYSE:RDS.A) aren’t well loved either. Even though Tillerson is far more diplomatic than predecessor Lee Raymond, don’t expect him to make many friends in the environmental movement any time soon.
As of this writing, Susan J. Aluise did not hold a position in any stocks mentioned here.