Investing

Exxon Mobil Is Biggest Dow Loser of 2017

Douglas A. McIntyre

Published: January 22, 2017 8:16 am

Last Updated: January 12, 2020 3:40 pm

The Dow Jones Industrial Average has barely moved this year, up .33% to 18,927.25, undermining ambitions that it will reach 20,000. Among the Dow stocks, the largest drag on the index, at least in terms of raw share price is energy giant Exxon Mobil Corp. (NYSE: XOM), the shares of which are down 4.84% this year to $85.89.

The current drop in Exxon’s shares is part of a pattern. The stock is off 8.48% for the last six months. This is despite the rise in oil prices which has lifted the fortunes of many other energy companies.

Some on Wall St. has started to give up on the company’s near term prospects. According to a MarketWatch article on January 18:

Analysts at UBS late Wednesday downgraded energy giant Exxon Mobil Corp. to sell, saying the company is likely to underperform relative to its global peers on production growth for “several years.” The analysts cut their price target on the shares to $77, from $86. Exxon also offers a lower dividend yield and trades at a premium to peers, the analysts said.

Exxon did increase the odds that its production will rise by moving into a corner of oil production which many investors favor recently. According to Reuters in a report on January 17:

Exxon Mobil Corp said on Tuesday it will pay up to $6.6 billion to double its holdings in the Permian Basin of west Texas and New Mexico, the largest oil field in the United States.

The deal, Exxon’s biggest since its 2009 buyout of XTO Energy, is the latest by oil producers across the Permian since last summer, with technological improvements and rangebound oil prices fueling the buyouts.

Exxon is exchanging an initial $5.6 billion in stock for leases covering roughly 275,000 acres from the Bass family of Fort Worth, Texas. Additional payments of up to $1 billion will start in 2020, depending on how the acreage performs, Exxon said in a statement.

Most of the wells to be drilled on the land should provide “attractive returns” with oil prices (CLc1) at or above $40 per barrel, Exxon spokeswoman Suann Guthrie said.

24/7 recently described the importance of the deal:

If there is one area of the United States that continues to enchant and enthrall energy investors and operators alike, it would have to be the Permian Basis. The abundance of oil and lower all-in costs to extract and deliver the oil have kept Permian Basin plays operating even during most of the oil crash from late 2014 into the first part of 2016. With oil coming back to above $50 per barrel, now we have word that Exxon Mobil Corp. is acquiring companies that will effectively double its Permian Basin resources to about 6 billion barrels of oil.