Exxon Is Reorganizing Its Downstream Operations To Boost Its Profitability

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Exxon Mobil

Despite showing a strong improvement in the September quarter, Exxon Mobil (NYSE:XOM), the world’s largest publicly traded oil company, is constantly striving to enhance its performance and shareholder returns in the ongoing commodity downturn. A large portion of the company’s profits have been contributed by its downstream operations over the last couple of years, since its upstream operations have struggled because of the plunge in commodity prices. Even as its downstream operations continue to drive its profitability in the current commodity slump, the company now plans to restructure these operations to further enhance its value in the coming years.

Exxon’s current Chief Executive Officer (CEO), Darren Woods, who was responsible for its refining operations before assuming the position of CEO in January of this year, has internally announced the reorganization of the company’s downstream operations by integrating its fuel and lubricants division with its supply and refining division. The purpose of this restructuring is to further boost the company’s downstream profits in the current volatile commodity markets by streamlining the operations. There has been no indication of job reduction or executive departures as part of the restructuring yet. Also, Exxon’s chemical division is likely to remain unaffected by this entire exercise.

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In an environment where some of the large oil and gas majors, such as BP and Petrobras, are launching initial public offerings (IPO) for their midstream and downstream operations to receive an attractive valuation for these operations, it seems like a reasonable move for Exxon to realign its downstream businesses to boost its profits. In simple words, the company is trying to strengthening its downstream operations, which form the core of its strength at the moment. By doing this, the company will not only be able to improve its profitability, but will also be in a position to mitigate the risk of a slower recovery in the commodity prices in the next few quarters.

Besides, Exxon currently operates 22 refineries in 14 countries, processing nearly 5 million barrels of oil per day (MMbpd), and has plans to invest around $20 billion to expand its chemical and oil refining plants on the US Gulf Coast over the remaining years of the decade. Having simplified and integrated its downstream operations, the company will be well-equipped to handle the increased output and growing demand that is expected to enhance its value in the long term.

Thus, while we do not foresee any significant impact on the reporting structure, the reorganization of downstream operations is expected to enhance Exxon’s profitability, irrespective of the recovery in commodity prices. We currently have a price estimate of $84 per share for Exxon Mobil, which is slightly higher than its market price.

Forecast of Exxon’s Downstream EBITDA (Base case)

Above, we have presented our forecast for Exxon’s downstream EBITDA over the next 4-5 years, excluding the impact of the restructuring. Feel free to create your own scenarios about the company’s profitability and visualize its impact on its stock price using our interactive platform here.

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