According to reports, Exxon Mobil (NYSE:XOM) is said to be in preliminary talks with multiple parties over the sale of its Esso chain of gas stations in Germany.  The move follows a broad pullback from the downstream and marketing business by energy majors as they focus on the high returns upstream business. Exxon is looking to reduce its downstream and marketing businesses in regions where demand was stagnant or in decline. The company sold its stake in gas retail sites in Germany last year for Euro 1 billion. According to the sources, no final decision has been made about the sale of Esso as of yet.
We are revising our $94 price estimate for Exxon Mobil, which is at a 10% premium to its current market price.
Exxon’s margins in the downstream and marketing segment trail its margins in its upstream and chemicals businesses. Some energy majors have completely pulled out of the downstream business to focus on upstream exploration and production, chasing the high returns in the segment. Exxon has stated that it saw its vertically integrated business model as a strength, but has selectively divested from certain markets as it focuses on high growth opportunities. Under its present CEO Rex Tillerson, Exxon has sold almost a third of its gas stations.  At the same time, the company has ramped up its upstream capital expenditure to limit production declines.
Exxon’s Esso chain has more than 1,100 gas stations in Germany. The sale could fetch Exxon up to $1.3 billion.  According to the report, Exxon is in talks with a few potential buyers, including 2-3 parties from Russia and Eastern Europe. According to our estimates, reduction in the company’s marketing footprint should not have a significant impact on its valuation as its contribution to the company’s overall value is limited.
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