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No. of Recommendations: 6
XOM has now fallen in 19 of the last 20 trading sessions. Yesterday, it closed down again adding to the 18 of 19 days mentioned in the article. XOM has lost around 9% during this streak.

YTD XOM is flat versus a 16% advance for S&P 500.

Other big oil companies are also falling, unrelated to the price of oil, mostly over fears that they cannot increase reserves.

http://blogs.marketwatch.com/energy-ticker/2013/08/19/exxon-...
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No. of Recommendations: 4
The last time I bought XOM was May and July of 2010 in the upper $50's. At the time, it did not make sense to me for the stock to trade lower in 2010 than it did in the 08/09 crash. According to this chart:

http://invest.kleinnet.com/bmw1/stats30/XOM.html

XOM looks like a deal again especially below $83/share. All the while, the dividend continues to increase at a nice rate and XOM continues to buy back shares. The chart is just another data point...

MR
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No. of Recommendations: 22
According to this chart:
http://invest.kleinnet.com/bmw1/stats30/XOM.html
XOM looks like a deal again especially below $83/share.


Beware the one gigantic flaw of the BMW method: it ignores how the company is doing.
A better approach is the original "Value Line" http://www3.valueline.com/dow30/f3226.pdf
For example, Exxon seems to be attracted to around 7.5x cash flow per share.
But cash flow per share, and by extension the value, is largely unchanged
from 2008ish (a good year for them) or 2011 or 2012 so the price should be also.
This suggests that $80-85 should be fair but not particularly cheap.

Jim
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No. of Recommendations: 1
Happy Foolish B-Day, Jim!

(You look great in balloons)

Cheers!
Murph
Home Fool
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http://stockcharts.com/freecharts/gallery.html?XOM

This is interesting. The 200 MA is dipping at the same time as support possibly breaking. This might become an inspirational chart if you get a better entry.

Dave
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No. of Recommendations: 5
Mungo,

Thanks. I never really looked at XOM trading in a range of 7.5X CF. Things to notes since 2008 for XOM:

1. BV has almost doubled.

2. ROE has remained in mid-teens or higher.

3. XOM bought XTO in 2011, yet IIRC was based on pricing from some time in 2010. XOM now largest US producer of Natural Gas. Natural Gas prices have been at about 30% of their 2006 highs (near $16 Henry Hub) and 2008 (near $13) and now at $3.48. I think cash flows could increase if and when natural gas prices rise and if world growth engine starts again.

4. Just a reminder that Exxon IIRC is AAA rated by S&P.
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XOM - held it for more than a decade, it is a hold forever stock.

sw
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XOM - held it for more than a decade, it is a hold forever stock.

It's true that there is that old rule of thumb:
The best investment is a well run oil company.
The second best is a badly run oil company.

But I think that enough surprises happen in this industry that it
doesn't count as a "hold forever" kind of thing.
If you know how many major spills and accidents there will be in the next
20 years, and you know what the oil price will be, and you know what the
political situation will be in all their main operating areas, then it's a hold forever.

Just because things have been rosy doesn't mean they always will be.
I think the industry is changing more than most people realize, and has been more lucky.
The "supermajors" are just bit players on a stage occupied by sovereign oil companies these days, for example.
Maybe it'll be great, but it's usually in my "too hard" pile because I
don't have the certainty that it will definitely be so.

Jim
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I think the industry is changing more than most people realize

Jim Chanos has a short theory on Oil Majors. The replacement cost of the reserves are higher and in politically unstable regions. He sees that as a long-term short theses for Oil majors.
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Maybe it'll be great, but it's usually in my "too hard" pile because I
don't have the certainty that it will definitely be so.


LOL, that's why I'm attracted to the Juniors and Intermediate players.

For the most part, when I lose my shirt it is't "hard" to understand why. :<)

B
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LOL, that's why I'm attracted to the Juniors and Intermediate players.

I prefer the service providers.
e.g., I'm heavily long Loews (L) in part because I like their big holding in Diamond Offshore (DO).

Jim
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No. of Recommendations: 22
But I think that enough surprises happen in this industry that it
doesn't count as a "hold forever" kind of thing.
If you know how many major spills and accidents there will be in the next
20 years, and you know what the oil price will be, and you know what the
political situation will be in all their main operating areas, then it's a hold forever.

Just because things have been rosy doesn't mean they always will be.


You can have material unexpected surprises in any industry. Exxon had Valdez, and they recovered. Exxon is a diversified energy company which produces not just oil, but also is the largest natural gas producer in the USA. They explore, develop, refine, distribute, drill and is one of the largest petrochemical suppliers in the world. They have done this for over 100 years, have maintained AAA credit ratings, and are respected throughout the industry. Keep in mind that natural gas prices continue to be at depression like levels.

I think the industry is changing more than most people realize, and has been more lucky.

Can you explain in what ways, and how that could affect Exxon in the future, and how that would not necessarily be the case for other industries, specifically asking about Berkshire Hathaway, since you are one of the most knowledgeable Berkshire investors of whom I am familiar with.

I can't see how Exxon can be placed in the "too hard pile" as it has a long history at what it does, and has a positive track record to prove it, as well as fundamentals that seem to lend a support to the current price. Again, one must understand that if natural gas keeps increasing traction, as well as if the price does not stay depressed, Exxon would be a logical beneficiary.

Here are some quick thoughts, and some are repeated from my post a few days back.

A. Earnings miss not awful. Planned refinery maintenance at a high cost certainly impacted the quarter.

B. Natural gas prices continue to slump. The price of NG is $3.57. XOM bought XTO in 2010. XOM now largest US producer of Natural Gas. Natural Gas prices have been at about 30% of their 2006 highs (near $16 Henry Hub) and 2008 (near $13) and now at $3.57. I think cash flows could increase if and when natural gas prices rise and if world growth engine starts again.

C. Book Value has increased considerably every year, and this includes including their peak earnings year of 2008.

D. ROE continues to be consistently over 20X.

E. XOM has a AAA credit rating.

F. Share count has decreased over the years. There were 67M shares outstanding in 2002, and as of June 30, 2013 there are 44M shares outstanding.

G. Dividend yield of 2.86% based on a stock price of $88.06 and a quarterly dividend of $0.63.

CM001, I have a question for you in regards to your post:Jim Chanos has a short theory on Oil Majors. The replacement cost of the reserves are higher and in politically unstable regions. He sees that as a long-term short theses for Oil majors.

Chanos had an Exxon short in 2011. He presented his thesis to VIC Does he still have that short? I was not able to find anything indicating such. His rationale is that the company is not replacing its reserves and is borrowing money to pay its dividend. XOM bulls claim that the better number to look at is reserves per share. Because of the share repurchases, the reserves/share has gone up every year except 2008 in the past decade. With the exception of 2009, the dividend argument seems weak as well since FCF has exceeded the dividend payment in every year of the past decade. (In the first half of 2010 and FCF is almost double the amount paid as dividends.)

I found his presentation on his October 2011 (almost 2 years ago) Exxon short here http://www.marketfolly.com/2011/10/jim-chanos-beware-global-...

Disclosure: I am a portfolio manager and Exxon is our largest position. It has been a core position since October 22, 2008. Here are some older notes on my site. I have not updated to the site, but my thesis is nearly identical today. http://rbcpa.com/companies/XOM_Notes.pdf
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No. of Recommendations: 5
I think the industry is changing more than most people realize, and has been more lucky.
...
Can you explain in what ways, and how that could affect Exxon in the future...


My thinking isn't very specific, but the fundamental issue is that the
nature of the business isn't primarily producing a product or service,
but digging up something pre-existing then selling it. For this to be
sustainable requires an ongoing ability to find new sources, cheaply, of that
material in new places that you'll be allowed to dig up and sell as if it's yours.
This dynamic has pretty much come to an end.
So, you manage downwards: profit sharing with the sovereigns, then
service contracts with the sovereigns, then...? A comfortable retirement?

There is no control of product pricing, no moat, no control of input costs,
and a huge headwind in terms of rising costs for sourcing and extracting what you do.
Things are getting worse on that front and will continue to do so.
And, to belabour the obvious, there is only so much stuff to be dug up.

None of these is sufficient to suggest that Exxon won't do well.
My reticence is not that simple, or specific, or quantified or justified.
They are definitely very good operators, and spectacular capital allocators,
but I fear that they are drifting inexorably towards being the best
players in a business with very difficult economics.
Plus, the trend is getting very much worse very rapidly.
And we all know the saying. "When a management with a reputation for
brilliance tackles a business with a reputation for bad economics..."

In the end it simply comes down to my perception that it's a business
where many people smarter than I am will make lots of money.
But I have fears, and those are sufficient to keep me away.
As it happens I'm down to zero allocation to energy firms as of this
week for the first time in many years, other than some indirect
exposure via my holding in Loews.

Jim
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With the exception of 2009, the dividend argument seems weak as well since FCF has exceeded the dividend payment in every year of the past decade.

I think his point was not just dividends but after cap-ex, buybacks, acquisitions, and dividends FCF is -ve.

I am not competent enough to say whether his argument is right or wrong. I looked at

Cash Flow from opex vs cap-ex+dividends+share buybacks. I see some merit in his arguments.

Remember the cap-ex is significantly higher than the D&A. So I guess some of the cash from operations (say about $15 B) goes towards cap-ex, which is what buys reserves. So the $10B dividends and the buybacks if they are not covered by the remaining cash flow then his argument has some merits.

In any case it was a lot more easier case at $55 to $60's than now.

I need to revisit Game Stop to see whether the short thesis is still valid and whether the current price is a better entry for a short.
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I'm no expert in Exxon, but the fact is that each year there is a lower chance of finding oil in the US that is cheap to produce. The breakeven point for oil shale like the Bakken is maybe around $80/bbl, but the majors were late getting there and will pay more for leases. Their overhead is higher,they pay their people more, they have high pension costs etc. They depend on cheap oil, their North American properties are depleting, and foreign countries have become expert at shafting US oil companies.

No doubt Exxon will be with us for a long time but I think they are in a going out of business mode, albeit very gradually.

There is still lots of oil left, but little cheap oil, and few spots with a lot of easy to produce oil in a small area, the kind of finds that made Exxon great. In the few places , like Iran, where there might be some cheap oil left, Exxon is not welcome,

Mungo is right.
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Jim:

Your post here 13626.........


I booked this post as an interesting and distant warning about energy, specifically oil.

Has your thinking changed any since September?

Have you any timelines here?

Thanks,

Shuksan
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I booked this post as an interesting and distant warning about energy, specifically oil.
Has your thinking changed any since September?
Have you any timelines here?


Well, Mr Buffett bought a lot of Exxon, so other things being equal it's likely that he's right and I'm wrong.
Since I'd rather be rich than right, I even bought a wee bit myself, but as explained it leaves me uncomfortable.
Hydrocarbons are not within my circle of competence and (unsurprisingly)
account for my two biggest losses of recent years, usually when I looked at yield.

As for my comments, the time frame is long.
This is not an argument against them, merely the explanation of why I
find it hard to build an argument for them.
The tray that holds my "too hard" pile is infinitely large and welcoming.
More than half of the things in there will turn out to be excellent investments.
Half of those are obviously good investments based on information available today.
I personally just can't figure out which those are, so that's the pile they stay in.

Jim
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No. of Recommendations: 19
There is still lots of oil left, but little cheap oil, and few spots with a lot of easy to produce oil in a small area, the kind of finds that made Exxon great. In the few places , like Iran, where there might be some cheap oil left, Exxon is not welcome,

I'm late to this thread but I just can't let this pass with out commenting.

What about Kurdistan where there have been huge discoveries (Shaikan among others) where Exxon is already and is a likely candidate to take on the huge task of bringing it to production as the current players are simply to small to carry that ball.

The Black Sea? Lot's of excitement about the prospects there and again Exxon is already there.

Africa? Both on shore and offshore have had exciting discoveries of late and while development has been hampered by political instability and lack of infrastructure it doesn't mean it will always be that way.

South America, again politics as much as anything, (Venezuela, Brazil and Argentina-Exxon's there) is all that is keeping potentially huge opportunities there from being realized. Look at Columbia's increased production from just some improvement in political instability. (Exxon's there)

Papa New Guinea...Exxon's there.

Did I mention Canada? Yup Exxon's there and it has huge areas that are under developed and under explored..

Yes even Iran could get religion, or should I say lose it ? :<) If the Soviet Union can fall then I would say writing off Iran for eternity is likely a bit premature.

As for your cheap oil/big finds that made Exxon cheap. Those big wells nowadays anyways come with huge price tags (Offshore) and dry holes as well and there is simply no reason that I can see that Exxon can't achieve the types of returns they seek by investing in so called "shale" plays here and around the world.

but I think they are in a going out of business mode, albeit very gradually.

You could say the same thing about the planet.

As for me I'm just trying to focus on the time frame that I'll be around. :<)

B
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