Market Overview

How Exxon's CEO Is Defending His Company


Earlier on Thursday, Exxon Mobil Corporation (NYSE: XOM)'s CEO Rex Tillerson spoke with CNBC on the station's "Squawk Box" segment.

Exxon has recently endured some substantial flack, including the decision to issue $12 billion in bonds last week to fund the increased dividend, a cut in capital investment commitments, and some mild tarnish toward the company's credit rating by Standard & Poor's.

Moody's also lowered its rating on the stock, moving it from Stable to Negative, and Vetr downgraded it from Sell to Strong Sell on Thursday. On average, Exxon has a Hold rating with a price target of $81.75.

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In addition, the company's quarterly results came in mixed, with revenue down 31.5 percent year-over-year, but still ahead of analysts' expectations.

Tillerson took the time on Squawk Box to defend his company, "We're coming off a five year period of very high capital investment," Tillerson began.

Over the past five full years from 2010 to 2015, the capital expenditure included:

  • "Average capital employed of 7.9 percent in 2015 was 4 percentage points above nearest competitor."
  • "Return on capital employed averaged 18 percent"

"We've invested about 190 billion dollars back into the business," according to Tillerson.
"Clearly the returns have been diminished," Tillerson acknowledged. "I just don't see pushing a rope into this market […] we're going to drill to save, maintain our acreage. We're going to continue our program so that we keep learning, because we have a very good learning process going on in the basins where we are working and I don't want to interrupt that. But it's just a question of how active do you want to be."

Tillerson's Share Buyback Pause

Regarding his recent stop in buying back shares, Tillerson explained that against the backdrop of the recent increased dividend, "We are a company that is built for the long term shareholder."

For reference, over the past 33 years, Exxon has continuously and consecutively increased its dividend. The annual dividend increase comes in at an average of 10 percent a year over the last decade. From another perspective, that comes in at an average of 48 cents on every generated dollar distributed to shareholders (over the past five years).

"We're not built for short-term investors. We love it when they buy stock. I hope they do, but when we make decisions about the financial structure of the company […] we're really thinking about twenty, thirty years out. And we're really thinking about those long-term shareholders."

Year-to-date, Exxon is up 5.72 percent and trading essentially flat on the day at $82.30.

Posted-In: CNBCAnalyst Color Dividends Commodities Economics Markets Media Trading Ideas


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