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Commentary

Exxon Stands Aparts From Its Peers

The energy giant's ability to generate cash, thanks to its scale and high-quality integrated operations, sets it apart and keeps it the most defensive of the group.

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Like its integrated peers,  Exxon (XOM) reported a sharp drop in third-quarter earnings, which fell 47% year on year, as lower oil prices took a toll on upstream earnings. In contrast, however, the company also managed to generate sufficient cash flow, with a little help from asset-sale proceeds, to cover its capital spending and dividend. 

For the year to date, the company is running a deficit that required an increase in debt, but we expect that by next year it can achieve cash flow neutrality at $60/barrel Brent, a feat its peers cannot. Furthermore, cost savings (capital and operating) combined with greater capital flexibility should bring its break-even level down further during the next few years, while the company continues to increase its dividend and maintain share repurchases. While Exxon continues to refrain from providing specific targets, instead invoking its goal of constant improvement, it did reveal an $8 billion reduction for the year to date in capital and cash operating costs and a 10% reduction in upstream unit costs. As a result, the company expects that capital spending for the year will come in below its original guidance of $34 billion.

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Allen Good does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.