Favorable Prospects at Exxon Mobil in the Wake of Newly Announced Development Plans
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Being one of the big wigs in the upstream oil industry, stakeholders have placed a lot of expectations on Exxon (NYSE: XOM). At the current situation, pressure is mounting as the stock has lost about $10 from the beginning of May. In my opinion, this is something that has been influenced by external powers. Europe’s debt crisis has had its share of negative implications on the global economy. Although remote, this has greatly affected the mainstream oil industry. Nonetheless, strong global emerging powers like Brazil and India save the moment.
Moving to Mexico
Exxon is fully aware of the profitability that Mexico extends. It plans to build plastic factories in Texas. The project will compel Exxon to fork out amounts in the billions of dollars. Exxon has taken advantage of the inexpensive North American shale gas.
It joins the bandwagon of increasing energy companies that have opted for cheap U.S natural gas to produce chemicals. Some of the big names that have followed a similar strategy are Chevron (NYSE: CVX) and Dow Chemical (NYSE: DOW). Dow in particular has a competitive edge. This is chiefly because most, if not all, of its operations are inclined towards chemical products.
The cheap natural gas has revived innumerable prospects at Exxon. Exxon intends to crank up operations at the Baytown based petrochemical and refining plant. This project, estimated at several billion U. S dollars, is slated for 2016.
The project is expected to create around 10,000 construction jobs and 350 permanent jobs. This will definitely create a brighter macro view of the economy in the area. From the basic economics that I know, a strong economy directly contributes to the prosperity of an establishment.
In my line of thought, prospects couldn’t be any more favorable. Exxon has the financial muscle to accelerate its outset into the Mexican chemical niche. Although it faces off with experienced players like Dow, I have strong convictions that it will capture a large section of the Mexican market. Given its reputable track record, I conclude that the plans to expand will glean incredible profits.
Chevron’s negative publicity
Chevron is an avid competitor. There is no debate about that. Nonetheless, it has recently been a victim of negative publicity following the bankruptcy of Kornarka. For those who don’t know, Kornarka is a solar panel maker. How does Chevron come into the picture? It joins the list of those who backed the company. It indeed backed a bad investment and now languishes in the after effects of bad decisions.
Howard Berke, the CEO at Kornarka added that the thin-film solar panel maker was not in a condition to obtain additional financing. He went on to state that its current financial position could not in any way provide a platform to continue with operations.
Although the real blame falls on oversupply and expansion in China, players like Chevron are the ones who are compelled to bite the bullet. Personally, I am convinced that this will not go well with some Chevron shareholders. There is a growing possibility that some shareholders may move to other stocks like Exxon.
Unending trouble at B.P
Last week Mikhail Fridman, CEO at TNK-BP resigned from the position of executive officer. This was a clear representation of the growing divides in the TNK-.BP camp. BP holds up to 50% of TNK-BP. This Russian BP subsidiary is shrouded in an overwhelming degree of incertitude as BP has made an announcement that it may sell its stake.
BP (NYSE: BP) is lodged between a rock and a very hard place. Why is this so? TNK-BP is showing tell tale signs of self destruction. It not only faces management problems but also has a lot of politicized issues at its table. BP is however at a cross roads as parting with TNK-BP may have adverse effects on its operations. TNK-BP accounts for 40% of BP’s global oil production. Selling the stake might practically slice BP in half.
Although nothing conclusive has been arrived at, this deplorable condition will act in the advantage of players like Exxon who exhibit tranquility. In conclusion, I believe that the current dynamics are in favor of Exxon. The theme is bullish and Exxon itself has ramped up operations.
muhammadbazil has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.