Exxon Mobil (NYSE:XOM) will be selling its stake in subsidiary Exxon Mobil Yugen Kaisha, which has refining and marketing operations in Japan. Exxon will be selling 99% of the shares in the company to partner TonenGeneral Sekiyu for $3.9 billion. [1] The deal will result in Exxon’s share in TonenGeneral dropping from 50% to 22%, reducing the company’s footprint in Japan, where petrol and diesel demand has remained weak over the past few years. Other oil majors such as BP (NYSE:BP) and ConocoPhillips (NYSE:COP) are also looking to limit their downstream operations.
We have a $93 price estimate for Exxon Mobil, which is at a 10% premium to its current market price.
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Lower refining operations
Oil majors have been looking to spin off refining assets over the past several quarters to concentrate on exploration and production. ConocoPhillips will spin off its refining and marketing businesses towards the end of the 2nd quarter of 2012 and BP is also going through with its multi-billion dollar divestment program to reduce downstream as well as other low-return assets.((ref:1)) While Exxon has not revealed any major plans to reduce its presence in the refining sector, it has been involved in a couple of deals to sell assets in some Asian countries.
Margins in the refining sector are cyclical and inversely related to crude prices. Tight fuel economy regulations on cars and trucks in developed countries are hurting demand for gasoline and diesel and the growth outlook is also limited. Companies have been reducing refining assets in the U.S. and Western Europe to free resources to fund exploration.
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