Gushing about oil

Exxonmobil (NYSE: XOM) is suffering through a disrupted oil market, and it’s going to be some time before supply and demand are brought back into some form of harmony. This makes profitability virtually impossible in the near term for most oil stocks.

Yet over the longer run, Exxonmobil is well-positioned to thrive. Remember that this is an integrated oil giant that’s not solely dependent on drilling and exploration. Yes, drilling is what offers the company its greatest growth prospects. But this is a company with plenty of cash flow potential from its downstream operations, such as refining and petrochemical operations. For the foreseeable future, Exxonmobil is expected to lean on its downstream segment, which should benefit from weaker crude oil prices.

Exxonmobil has the size and scale to optimize its production costs — and the luxury of cutting back on capital expenditures to control cash outflows during a period of unprecedented demand weakness. Recently, the company cut $10 billion from its capital spending forecast for 2020. Management plans to keep the company’s dividend intact for now, but that could change. Still, even if the dividend were reduced to a third of its recent level, it would offer a reasonable payout — its dividend recently yielded 7.7%.

Exxonmobil’s balance sheet is solid, too, with a debtto-capital ratio better than most of its peers. The company is likely to emerge from the pandemic economy in good shape.