In a report published Wednesday evening, Deutsche Bank analyst Ryan Todd commented that Exxon Mobil Corporation's XOM analyst day that was "largely as expected."
Todd noted that Exxon discussed a moderated capital budget outlook (approximately $34 billion a year), unchanged production target in 2017 and a "steady reminder" of the flexibility that a diverse, robust portfolio and AAA balance sheet provide.
"Equally important, the worst of the recent years' deterioration appears to be behind it, in time for the start of the next cycle: liquids mix shift is accelerating, profitability per barrel of energy is bouncing, and outsized capital demands are receding," Todd wrote. "Less clear is the pace at which Exxon's future growth portfolio can adjust to a moderated crude price, and the impact on the post-2017 outlook."
Related Link: Oppenheimer: Exxon Mobil Needs $85 Crude Oil
Todd added that Exxon's shift towards liquids (71 percent in 2017 versus prior 69 percent) is showing signs of improved profitability, with net income per barrel of energy bouncing in 2014, while the analyst's calculations suggested a 2 percent per year improvement in unit cash margin through 2018.
However, Exxon's decision not to extend its outlook beyond 2017 was a "testament to the degree of uncertainty" in the market outlook. The analyst suggested that the challenge for Exxon (and its peers) will be the degree and pace at which they can adjust the cost structure of the post-2017 growth portfolio (LNG, deepwater, etc) to the realities of a post $100 per barrel of oil world.
Shares are Hold rated with a $91 price target as recent initiatives are showing encouraging signs, but the long-term outlook remains "cloudy."
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