Exxon Is Cash-Heavy And Looking To Buy
So say many energy analysts. And they’re right about at least half of it since the company is flush with profits thanks to the oil market of the last few years. In cash reserves alone, Exxon (NYSE: XOM) has $40 billion, with another $225 billion in repurchased stock
That’s nothing to sneeze at, which is exactly why people are speculating the way they are; after all, what better way to utilize that money than to buy up competitors?
Some think it will have a go at Royal Dutch Shell (NYSE: RDS-B), which is its next largest competitor. Considering the last company Exxon swallowed up back in 1999 - Mobil, which was the #2 oil company in the U.S. at the time - it seems like a likely assumption.
But regardless of what Exxon does, you can expect more intuitive decisions from its management. It’s difficult for companies to look further than the latest trends, especially when the latest trend lasts for multiple years. Yet - as the auto debacle is daily proving - it’s also essential to make sound business decisions based not only on what’s “in” now but also what’s going to be “in” later.
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And that’s exactly what Exxon has done over the last five years, unlike the competition. Most oil companies have been desperately utilizing new (translation: expensive) equipment to seek out new (translation: even more expensive) projects, believing that oil really was going to reach the $200 mark if not higher. So while they were spending exorbitant amounts, they were sure they’d rake in profits to make it worth worthwhile.
As it stands now though, they were wrong… very, very, very wrong in fact.
The energy giant has gotten a lot of flack in the past for not playing along, but now that oil has fallen as far as it has, Exxon is reaping rewards two-fold. As mentioned before, it has money while competitors are bleeding it. That in itself has the added benefit of the satisfaction that comes with a job well done, not to mention bragging rights. But it also means that other companies are in prime position to be pounced on, bought up and assimilated.
Will Exxon take advantage of their enviable position? If the analysts are right, it isn’t a matter of whether they’ll acquire new assets or not, but who they’ll acquire and who they won’t.
Monday, January 5, 2009 — by Jeannette Di Louie, Assistant Editor of Mt. Vernon Research
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