Exxon Mobil to Divest ESSO – Analyst Blog

The U.S. oil giant Exxon Mobil Corp. (XOM) is planning to divest its Argentine subsidiary ESSO, according to a report in the local financial daily El Cronista. The amount of the negotiation was not disclosed and the Argentine unit denied commenting on the transaction.

 

ESSO operates more than 450 service stations and a refinery in the town of Campana and has the capacity to process 85,000 barrels of crude oil a day. Back in 2008, Exxon had opted to sell off these assets but finally refused due to the lack of lucrative offers.

 

The companies interested in the recent bid are Brazil’s Petróleo Brasileiro S.A. (PBR), Pan American Energy, in which BP plc (BP) owns a 60% stake, and Argentina’s Bridas Corp.

 

Exxon’s downstream asset sale decision is mainly reflective of the difficult operating environment prevailing in Argentina. The Argentine government seeks to regulate fuel prices profoundly to control inflation. As a case in point, the government cut back fuel prices last month to the July 31 level to constrain inflation, which was more than 20%.

 

Additionally, Repsol YPF, S.A. (REP) initiated number of measures that should reduce its Argentine exposure to 51% from the current 85% stake in slow-growth YPF.

 

The U.S. integrated oil company’s second quarter results benefited from higher oil price realizations, improved downstream margins and strong chemical contributions. With the XTO deal now complete, Exxon Mobil is enjoying access to significant unconventional resources as well as North America’s newest energy discoveries, as it is looking forward to the growth of natural gas in expanding its share of the world’s largest energy market.

 

Moreover, as Exxon draws significant earnings from its upstream business, we believe this deal will marginally affect the company and will retain its leverage to higher oil prices going forward.

 

However, with Exxon’s large base, the possibility for growth in oil and natural gas production has been a challenge over the past several years and has pushed the company into a riskier and more regulated framework. Consequently, we have a Zacks #3 Rank (short-term Hold recommendation) and maintaining our Neutral rating for Exxon Mobil.