With the promotion of refining expert Darren Woods to the post of President on Jan. 1 and the approaching retirement of CEO Rex Tillerson, shareholders of Exxon Mobil Corporation (NYSE:XOM) may be forgiven for asking if the company has grown too big to succeed. Over the last five years Exxon Mobil stock has advanced just 11%, but the Exxon dividend has risen from 47 cents to 75 cents per common share.
Even before the 2014 oil crash, XOM stock’s revenues were falling and they should be down substantially from last year’s $259 billion when they are announced early next year.
Exxon managed to squeeze $2.7 billion in net income from last quarter’s $58 billion in revenue, but that came from reducing the capital budget, which is where future revenue comes from.
Once Woods, who joined XOM in 1992 as a planning analyst in its international division, takes further command of the company, it will face an existential crisis.
It is time to think the unthinkable for Exxon Mobil stock. Is it time for XOM to be broken up, not by the government but by its management?
XOM Stock: Take a Look at Conoco
ConocoPhillips (NYSE:COP) made the difficult decision to split in 2012. It is now two companies, an oil exploration firm operating under the original name and Phillips 66 (NYSE:PSX), a refining and marketing company.
Since then, the exploration company has lost one-third of its value, and its dividend is one-third of what it once was. It has ridden the highs of $100 per barrel oil, and suffered with $40 per barrel oil.
But PSX has had a very different experience. That stock is up nearly 130% since coming to market, with the dividend rising from 20 cents per share right after the split to 63 cents per share now. Had you gotten in at the low of $30 per share in 2012, your dividends would be yielding over 8% on your initial investment.
Obviously, refining and marketing oil has proven to be a better business over the last four years than finding it and bringing it to the surface. Investors have been free since 2012 to recognize this fact, to dump their COP shares and pick up PSX.
The same sort of thing has happened with Marathon, which split into Marathon Oil Corporation (NYSE:MRO) and Marathon Petroleum Corp (NYSE:MPC) in June, 2011. Since then, Marathon Petroleum is up nearly 155%, the dividend has nearly tripled and it even enjoyed a 2:1 split last year. Marathon Oil is down nearly 37% and the dividend has nearly disappeared.
But shareholders have been allowed to recognize the trend and dump their investments in oil production while buying into the refining outfit.
Could This Work With XOM?
Exxon Mobil stock is paying a 75 cent per share dividend, yielding 3.47%, but that has not been sustained by earnings for over a year. Under Tillerson, XOM became increasingly political, and while no Texas judge will find him guilty of ignoring climate change, his business priorities have been geared toward oil production, not refining, which has proven to be a bad bet.
Woods could change that for XOM stock, but he is on a short leash. His salary is set at $1 million, a pittance by CEO standards, and he is not paid extra for serving on the board. Tillerson turns 65 in March, and 65 is the Exxon’s mandatory retirement age. At his last annual meeting as CEO last year, Tillerson faced down many climate change protesters, but tried to take a conciliatory attitude.
Its last 10-K report says that XOM has over 5 million barrels per day of refining capacity and over 20,000 retail outlets, with most of those outside the U.S. run by distributors or resellers. Over half its profits came from “downstream” operations, and those profits nearly doubled between 2014 and 2015.
Splitting Exxon into refining-chemical-marketing and oil production units would allow the former to reinvest all that capital in operations, while allowing Exxon stock investors who wanted to bet on higher oil prices a vehicle to do that.
Bottom Line for Exxon Mobil Stock
A split was the road not taken by Tillerson, but the road could be available to Woods if he decides to pursue it. Splitting XOM in two would be politically explosive but could be a huge win financially for Exxon Mobil stock investors.
The time for Woods to make his mark, and make his choice, is approaching. A split would send XOM stock soaring, and if you want to bet on one, then now is the time to buy.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
