Exxon Mobil Feeling the Pressure

[Gator]

XOM lowered buybacks to $3Bn for second
consecutive quarter and missed 2Q13 estimates.
Disappointing results fared better in comparison
with European Integrated, and US E&Ps captured
the flow. We see continued downside risk to XOM’s
earnings, buybacks, returns and valuation.

Morgan Stanley is currently acting as financial advisor to InterOil Corporation ("InterOil") with respect to its exclusive negotiations with
ExxonMobil Papua New Guinea Ltd., a subsidiary of ExxonMobil, on the development of Petroleum Retention License 15, which
comprises the Elk and Antelope fields in the Gulf Province of Papua New Guinea. The proposed transaction is subject to the
negotiation of a definitive agreement, required regulatory approvals and other customary closing conditions. InterOil has agreed to
pay fees to Morgan Stanley for its financial advisory services which are contingent upon the consummation of a transaction.

[ArtM72]

A few things interesting about "Feeling the Pressure". In the disclosures it shows Evan Calio as the analyst upon whose views the report relied. Calio has covered IOC for Morgan Stanley for years (e.g. SHU Seeking Alph http://seekingalpha.com/article/294507-o...arter-ever). Also, the relationship between Morgan and Chevron appears very strong, so strong Chevron information is featured prominently in the Disclosure section. Just maybe Chevron will appear in subsequent IOC negotiations.

Finally, buyback appears the principle focus of XOM excess cash investments after payment of dividends. It would appear from that the company has a hard time finding better investments than its own stock. Of course XOM carries plenty of debt and any acquisition of IOC properties would likely be financed at least in part, but still, you don't buy back your shares when you have better investment ideas elsewhere, do you?

[ebster123]

Art, care to expand on the last sentence of your thoughts? TIA

[Gator]

XOM has always had a strong stock buy-back program. That is why it was completely ridicules when it was suggested that IOC shareholders would receive two shares of XOM stock as a dividend from the sell down process. Someone had no idea how capital markets work.
CVX has been plowing much more $ into E&P (vs. stock purchase). That is why they have a better growth rate and a better return on equity than XOM, hence the CVX over XOM report from MS.

[jft310]

Exxon with it bought back shares could then reuse those Treasury shares and use those shares/reisuue them to buy Interoil. In aggregate could be non dilutive to current Exxon shareholders and non taxable to IOC shareholders. Happens all the time on Wall Street. Would Exxon do this.?? I would be surprised. Some very large IOC shareholders prefer shares vs a lot of cash. Odds again slim. IOC needs lots of cash to build infrastructure.