What Exxon knows that others don't

On Wall Street, you'd be hard-pressed to find similar continuity in leadership, long-term vision and constant questing for the next big thing.

By InvestorPlace Sep 1, 2011 9:19AM
Image: Oil pump jack, low angle view, dusk (© Seth Joel/Photographer)By Jeff Reeves, Editor, InvestorPlace.com

Exxon Mobil (XOM) was all over the news Wednesday, thanks to a joint venture to hunt for oil in the frozen north of Russia. Some pundits questioned whether Exxon will succeed in navigating the risky terrain of Soviet-style politics, to say nothing of the difficulty of drilling in Siberia. Others said Exxon could have just forged its most profitable partnership in history.

However the Exxon deal in Russia plays out in the years ahead, investors should take note of one very important fact: Exxon has been building this deal for years, with an eye on the long term and a refusal to let its current dominance and $350 billion market capitalization overshadow the need for future successes.

Sadly, such discipline in vision is rare in corporate America these days.

Anyone who watches the market can rattle off a host of struggling companies that flail around with no real direction. Companies like Hewlett-Packard (HPQ) epitomize the uncreative and wasteful ways of Wall Street corporations -- buying Palm for $1.2 billion purchase, then giving up on that buy a mere 16 months later.

And any investor who has played the market long enough has firsthand knowledge of corporate shenanigans that simply juiced stats in the short term or garnered a brief PR bounce but ignored long-term goals and failed to build the business. Case in point: AOL (AOL) and its recent bogus stock buyback to boost EPS and to try to fool investors into thinking it's not in a slow death spiral.

Exxon, on the other hand, knows that in the long run oil demand is only going to go up and supply is only going to dwindle. That means it needs to aggressively explore new opportunities, even if they take years of work to conjure into reality and years of more work to actually start paying off.

That is the case with its deal to access tens of billions of barrels of oil in Russia, a move Exxon has been trying to make for the better part of two decades since the collapse of the Soviet Union.

Even more shocking is Exxon's ability to admit that its core business of crude oil cannot sustain the company forever. Consider its $41 billion deal to buy natural-gas giant XTO Energy, largely because of the assumption that gas will become increasingly favored in the years to come because it is a cleaner-burning fossil fuel than crude. You have to have a keen level of self-awareness to make a move like that.

How is it that Exxon has kept its eyes on the prize all these years and continues to build its business despite already being the largest publicly traded stock in the U.S.?

A comprehensive vision and coordinated leadership have a lot to do with it. Consider that current CEO Rex Tillerson originally joined Exxon in 1975 as an engineer, then oversaw Russia's first offshore project in Arctic conditions in the 1990s. One could fairly state that much of Tillerson's career has been dedicated to the preparation for a deal like this.

Another reason would be a corporate culture that continues to stress responsible growth, shrewd deal-making and fiscal discipline. Consider that out of all the corporate world, Exxon is one of four remaining U.S. companies that get a AAA rating from Standard & Poor's for their debt. Consider that even though oil prices hover around $90, Exxon is on track to nearly match its record $477 billion in revenue produced in fiscal 2008 as oil topped out at about $150. Consider that Exxon has thrown off enough cash to pay a dividend since 1882, and has consistently raised dividends for 29 years in a row thanks to a very reliable revenue stream and predictable growth.

Who knows if the Exxon foray into Russia will result in mammoth profits or is another doomed deal in Russia -- akin to the earlier agreement oil giant BP (BP) had forged with Moscow power brokers only to watch it fall apart before reaching fruition. But one thing is for certain: Exxon is committed to the long term and is building its business the right way even as most companies get sucked into the 24-hour news cycle and day-to-day market volatility.

That is reason alone for long-term investors to have confidence in this stock for years to come.

Jeff Reeves is the editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.

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Sep 1, 2011 2:13PM

What I know that others don't.


The exxon valdez oil spill was the fault of the US COAST GUARD!!!! The coastie on radar guard the day the tanker ran aground tested positive for pot,cush,mary jane, hoouch.  So he was out behind the radar shack BURNING ONE while the tanker was headed for bligh reef and was too stoned to notice.


That's the truth and I'm sticking to it!!!!

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