Thursday, September 3, 2015

When oil prices fall, Exxon suffers less than you think

ExxonMobil's chemical works is bigger than Dow Chemical or DuPont

When oil prices fall, Exxon suffers less than you think

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We know ExxonMobil as Big Oil: the largest U.S.-based oil company, the bossiest of the global Seven Sisters, and, often, the most-valuable U.S. stock (when it's not Apple Computer.) 

So the "30%-below-consensus oil price forecast for 2013" is bad for Exxon, no? Actually, not so very bad: Exxon's huge chemical works turn out to be "an excellent hedge for declining commodity prices," writes Pavel Molchanov, oil analyst at Raymond James & Associates.

Counted as a "standalone company," Exxon chemical sales totalled $4.4 billion last year -- "82% larger than Dow Chemical ($2.4 billion), 26% larger than DuPont ($3.5 billion), and more than half" as big as the biggest chemicals-only company, BASF ($8 billion.)

As oil prices fall, chemical inputs become cheaper, and chemical sales and profits provide a larger proportion of ExxonMobil profits. Total profits will drop with oil prices, but not so much as for Exxon's rivals, Molchanov concludes: "Exxon is the ony one of its peers whose cash flow, we project, will cover all of its 2013 capital program, without having to cut spending," plus dividends, and even some share buybacks. 

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PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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