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Exxon Mobil (XOM – Free Value Line Report on Exxon Mobil) is one of the world’s most important producers of oil and natural gas. Its decisions and performance are watched around the world by investors and industry watchers alike. A strong first quarter, in which earnings per share of $2.14 easily topped both our estimate of $1.75 and the year-earlier tally of $1.33, was a solid indication of its continuing health.

According to Value Line analyst Robert Mitkowski, the improved performance was broadbased, driven by higher crude oil and natural gas prices, increased refining margins, and a record performance from the chemicals division. A more detailed review of the company’s performance can be Using the VL Page_Historical Arrayfound in the earnings Supplement for the first quarter. One note of interest from that earnings review was Mitkowski’s observation that “Increased spending is pushing up oil-equivalent production.”

Clearly, in the oil and gas business, capital spending is very important. This is the “increased spending” about which Mitkowski is talking. While one expects such spending to rise as a company’s size increases, there has been a notable uptick in Exxon Mobil’s capital spending in recent years, with this figure going from $2.26 per share in 2005 to $5.40 per share in 2010. Annual per share figures for capital spending can be found in the Statistical Array of Value Line’s research report for the company.

This spending, plus spending on growth-oriented acquisitions, has led to a notable increase in production. Indeed, in the first quarter, the amount of oil and gas pumped on a combined basis rose 10%. Investments in Qatar and unconventional natural gas fields were the main drivers. As the Analyst Comment in the most recent report points out, it is difficult for a company as large as Exxon Mobil to grow rapidly. What is impressive about this company’s history isn’t the speed with which it has grown, but thUsing the VL Page_Analyst Commente consistency.

Spending for the future is one part of that consistency. In fact, a recent collection of finds in the Gulf of Mexico is a testament to these efforts. The two oil and one gas field discoveries are among the largest in the region. What is interesting about this is that Exxon Mobil is not a particularly large player in the region. This find, coupled with the recent purchase of U.S. natural gas giant XTO energy, may signal a shift in focus.

As oil has become more difficult to find and extract, many companies, including Exxon Mobil, have ventured into more politically complex relationships to acquire reserves. Clearly, the tumult in the Middle East shows that these relationships can sometimes become problematic—often rapidly so. The purchase of a large domestic gas driller and a renewed focus on the Gulf of Mexico appear to signal that Exxon Mobil is looking for “safer” alternatives. While not surprising, it is a change worth noting, especially as the company appears set to continue increasing its exploration efforts over the next couple of years. Note that Mitkowski estimates capital spending of $5.85 and $6.25 per share, respectively, in 2011 and 2012 (these estimates are denoted with bold typeface in the Statistical Array), continuing the recent trend toward higher levels of investment. These three projects can now be added to those in Canada, Iraq, Alaska, and Australia that Mitkowski made reference to in his report as potential performance drivers over the 2014 to 2016 time frame.

Using the VL Page_Ratings BoxExxon Mobil has a clear and consistent focus that has allowed it to achieve remarkably consistent stock performance. For example, the stock earns high markets for Price Stability (100, which is the highest possible score) and Price Growth Persistence (90, out of a possible top score of 100). These figures can be found in the Ratings box at the bottom right of every Value Line stock report. Where the company’s results are less consistent is Earnings Predictability, which is not surprising because of the influence commodity prices have on earnings. The volatility here can be clearly seen in the Statistical Array if one examines earnings in 2008, when energy prices were high, and 2009, when energy prices fell precipitously.

The company’s size and consistency have also allowed it to focus a great deal of time and effort on efficiency. On this front, the energy giant clearly outperforms its peers. Exxon Mobil’s Net Profit Margin (found in the Statistical Array) was 8.9% in 2010, while the average for the industry was just 5.6% (subscribers can find this statistic in the quarterly Petroleum Integrated Industry Review). Moreover, the industry avUsing the VL Page_Top Labelerage Return on Shareholder Equity for that year was 13.8%, well behind this blue chip’s 20.7%. Clearly Exxon Mobil is a well-managed company.

Although oil prices are currently elevated, natural gas prices are depressed. Since Exxon has material footprints in each market, it may be an interesting time to consider an investment here. Indeed, the stock’s Relative P/E is toward the low end of its historical range. (The current Relative P/E can be found in the Top Label section of the most recent report, while the historical number can be found in the Statistical Array.)

While one might expect such a situation at a time when oil prices are high, the low prices for gas offer an interesting counterbalance. In fact, low gas prices have probably been a drag on the issue’s share price performance to some degree. Should gas prices rise from current historically low levels, there is the potential for a share price advance. Moreover, if oil prices were to fall, but gas prices rise, the company’s performance may hold up better than some of its more focused competitors.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.