ExxonMobil Corporation (XOM) intends to sell a few of its oil and gas production assets in the shallow water of Gulf of Mexico (GoM), including some pipeline holdings, in order to manage its portfolio.
In the initial divestiture phase, the oil giant will shed pipeline assets and platforms situated along the central Gulf Coast that produce approximately 12,000 barrels of oil per day and 49 million cubic feet of natural gas per day, or about 14% of the company’s oil and gas production in the area.
Last year, Exxon had reported average net production of about 85,000 barrels of liquids per day and 350 million cubic feet of gas per day from the area.
The company has already started the marketing procedure, but did not finalize any deal in the absence of a prospective buyer. The largest U.S. oil company also highlighted that it will initiate a deal only if it finds the proposal agreeable.
Divestiture plans are usually a part of big, integrated oil companies’ strategies to offload mature oil and gas properties. Such attempts are reflective of their intention to focus on large, capital- and technology-intensive projects, which are expected to provide significant increments to their production and reserves.
ExxonMobil is the best-run integrated oil company in the world given its track record of superior return on capital employed. However, due to its large base, achieving growth in oil and natural gas production has been a challenge for ExxonMobil over the past several years.
ExxonMobil holds a diversified portfolio of global energy businesses with attractive long-term growth opportunities. With XTO Energy now on ExxonMobil’s board, the growth outlook of the oil giant is more promising on the back of easy access to unconventional resources. However, since access to new energy resources is becoming increasingly difficult, ExxonMobil, like most of its peers, is facing headwinds in replacing its reserve.
With the expectation that the stock will perform in line with the broader equity market, we have a Zacks #3 Rank (short-term ‘Hold’ recommendation) and maintain a long-term Neutral recommendation on Exxon shares.
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