Exxon Mobil (XOM) Finds Upside With Pioneer Merger, Defying Oil Price Slump

Exxon Mobil completed the acquisition of Pioneer Natural Resources in May this year. Six months on, the company has used the acquisition to offset the effect of a 17% decline in average oil prices during the quarter, registering the first impact of the new asset.

Exxon Mobil Corporation is a multinational oil and gas company involved in the exploration, production, refining, and marketing of oil and natural gas. Additionally, it’s one of the largest chemical companies globally, producing a wide array of essential petrochemical feedstocks. The company was founded in 1882 as part of the Standard Oil Trust and is headquartered in Spring, Texas.

The company has an extensive portfolio of products including crude oil, for refining into petroleum derivates; natural gas; refined fuels, like gasoline, diesel, jet fuel, and heating oil; and motor oil and industrial lubricants.

The chemical division produces olefins, basic building blocks for various plastics and chemicals; polyolefins, used in packaging and automotive parts; aromatics, crucial for producing chemicals like benzene and toluene; ethylene glycol, used to make antifreeze and polyester; and other specialty chemicals including elastomers, plasticizers, solvents, and adhesives.

Its Upstream Operations represent approximately 50% of the total revenue, driven by oil and gas production. Downstream Operations generate 40% of the total revenue while the Chemical Division makes up roughly 10% of total sales.

Exxon operates in 38 countries around the world, with end markets encompassing a wide range of sectors like transportation, manufacturing, energy generation, and consumer markets. The company’s top clients include Chevron Corporation, ConocoPhillips, Eastman Chemical Company, American Airlines, and the U.S. government.

Over 3 years, the company’s stock boasts incredible performance compared to its peers. It has given more than twice as much shareholder returns as the next big competitor. At a $59.5 billion all-stock deal, Pioneer Natural Resources acquisition was the largest by Exxon since the merger with Mobil in 1998. It was also the largest deal in the energy sector in the last 8 years.

The fact that the company’s management has pulled it off and delivered an impact to the bottom line is worth appreciating and drives our bullish thesis. It managed to increase net production by 5% QoQ, which included the highest liquids production in more than 4 decades.

The management also raised the dividend by 4.2% to $0.99 per share, giving dividend investors a healthy yield of 3.39% at current rates. The stock appears to have limited downside potential after demonstrating resilience in a declining oil price environment. Since the company doesn’t rely as much on increasing oil prices as before, it makes for a good investment at current levels.