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ExxonMobil to Sell Scarborough Field Interests to Woodside

Zacks

ExxonMobil Corporation XOM recently agreed to divest its 50% stake in the Scarborough gas field offshore Western Australia to Woodside Petroleum Ltd for $744 million. The gas field is located in the Carnarvon Basin.

Divestment Rationale

The divestment can shrink ExxonMobil's risky asset portfolio and give an opportunity to focus on comparatively cheaper offshore liquefied natural gas (“LNG”) prospects in Papua New Guinea, Mozambique and others.

Moreover, the company was of the opinion that the economic development of the gas field involved a few challenges like water depth, resource characteristics and execution complexities. With production unlikely to start before 2025, short-run payoff from the field is not available.


Additionally, offshore drilling is excessively expensive that might dent the company’s cash flow. The Scarborough project’s overall estimated cost was $9.7 billion. ExxonMobil’s move is likely to enable the company to improve its cash flow situation.

About the Company

Irving, TX-based ExxonMobil is the world’s largest publicly traded oil and gas firm. The company has a leading position in the energy industry owing to the size and diversity of its asset base, both in terms of business mix and geographical footprint. It has three operating segments: Upstream, Downstream and Chemical.

Following the shale revolution, the area along the Gulf Coast boasts plentiful supply of oil and gas. ExxonMobil is expected to capitalize on the availability of cheap natural gas to manufacture chemicals as well as energy efficient plastics for export. In other words, the company will cater to growing demand for chemicals and refined fuels, by taking advantage of the shale revolution. Hence, the company is expected to generate significant cash flows from its downstream operations in the long run.

ExxonMobil has lost 7.9% of its value in the last year, against 5% rise witnessed by the industry it belongs to.

Zacks Rank and Stocks to Consider

ExxonMobil carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the oil and energy sector are Cabot Oil & Gas Corporation COG, Suncor Energy Inc. SU and Pioneer Natural Resources Company PXD. All these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Cabot is an independent energy company. Its sales for the fourth quarter of 2017 are expected to increase 36% year over year. For 2017, the bottom line is expected to be up 342.9%.

Based in Calgary, Canada, Suncor Energy is an integrated energy company. Its revenues for first-quarter 2018 are expected to improve 19.1% from the prior-year quarter. For 2018, the bottom line is anticipated to be up 18.5%.

Irving, TX-based Pioneer Natural Resources is an independent oil and gas exploration and production company. Its revenues for first-quarter 2018 are expected to improve 22.4% from the prior-year quarter. For 2018, the bottom line is anticipated to be up 152.8%.

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