The Institute for Energy Economics and Financial Analysis (IEEFA) – A Cleveland-based Institute for Energy Economics and Financial Analysis conducting research and analyses on financial and economic issues related to energy and the environment. With a mission to accelerate the transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable energy resources – published a report last week that indicates deep financial weaknesses at ExxonMobil and suggests the company is in potentially irreversible decline. The report “Red Flags on ExxonMobil (XOM)” IEEFA Director of Finance Tom Sanzillo, cites key metrics that include a 45% drop in company revenue over the past five years, a growing reliance on long-term debt to cover shareholder dividend payments, and declines in capital expenditures, end-of-year cash balances, and free cash flow—all signs of significant deterioration. ExxonMobil’s stock performance in the meantime has trailed the S&P 500 for 10 quarters in a row.
The report urges institutional investors in particular to question ExxonMobil’s financial and management strategies. “Both ExxonMobil and its investors find themselves in a pivotal period,” the report says. “The company’s financial performance alone suggests an enterprise facing a much smaller market for its product.”
Sanzillo said ExxonMobil warrants urgent attention in part because it is the last of the major oil companies among the S&P 500’s top 10 stocks by market capitalization. That list once included seven major oil companies, a presence that has been usurped by technology companies, consumer-goods stocks, and telecommunications companies. “The company is emblematic of the once dominant energy industry that now takes a back seat to other sectors of the global economy,” Sanzillo said. “Corporations that specialize, by comparison, in information technology, manufacturing, finances, consumer goods and telecommunications are all growing at faster rates than the oil industry—and they all have more stable outlooks.” The report shows that oil prices, the main driver of ExxonMobil’s decline, have been on a largely downward path since 2011, and notes that ExxonMobil CEO Rex Tillerson said at the annual Oil & Money conference in London the previous week that low prices will persist for years to come.
