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ExxonMobil (XOM) Eyes $25-Billion Divestment Plan by 2025

Zacks Equity Research

Exxon Mobil Corporation XOM intends to divest around $25 billion of hydrocarbon assets through 2025 in order to focus on more profitable projects, per Reuters. The assets to be sold, which are located in Asia, Africa and Europe, are expected to increase competitiveness of the company’s portfolio. Its latest reported divestment program targets $15-billion asset sell off by 2021. In this regard, it has made several deals so far, including the $4.5-billion upstream divestment in Norway.

Notably, with the planned massive sell off, ExxonMobil is expected to exit the European upstream business. The assets that will be up for sale are primarily located in Romania, Germany and British North Sea. The list excludes the Groningen gas field in the Netherlands, partnered by Royal Dutch Shell plc RDS.A. However, the local government wants to stop operations in the region by 2022 due to increasing earthquakes.

The company’s upstream operations in the Southeast Asia will shrink, with asset divestments from Malaysia and Indonesia. In Africa, the company is likely to divest properties in Equatorial Guinea and Chad, and portions of its assets located in Nigeria. The divestments from at least 11 countries will free up cash, which can be invested in ExxonMobil’s upcoming mega projects.

Some of the company’s mega projects are located in Mozambique, Papua New Guinea, Guyana, Brazil and the United States. Notably, ExxonMobil completed 14 discoveries in the Stabroek Block, with more than 6 billion oil-equivalent barrels of reserves located off the coast of Guyana. The largest publicly-traded energy firm has extensive plans of boosting production from the prolific Permian Basin in the United States.

As the company is eyeing several profitable project start-ups, capital spending is expected to rise in the coming days. Its capital expenditure is expected to rise from $26 billion in 2018 to $30-$35 billion by 2025.

Divestment Trend

With the current weak commodity price scenario and growing pressure from investors, energy majors are currently streamlining their portfolios. In addition to ExxonMobil, Shell and BP plc BP are also getting rid of projects with lower profitability. Following the acquisition of BG Group in 2016, Shell has divested more than $30 billion worth of assets. Since the Gulf of Mexico spill incident, BP has divested $65 billion worth of assets, which significantly reduced debt burden.

Price Performance

ExxonMobil has lost 7.7% in the past year compared with 6.1% decline of the industry it belongs to.

Zacks Rank & Stock to Consider

Currently, ExxonMobil carries a Zacks Rank #5 (Strong Sell). A better-ranked player in the energy space is Contango Oil & Gas Company MCF. The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Contango Oil & Gas’ bottom line for the current year is expected to rise 87% year over year.

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