For ExxonMobil, success has bred an odd problem. With oil prices hovering near $50 per bbl. recently, the energy behemoth has been churning out profits. Over the past 12 months (through the end of March), earnings gushed to $28 billion--almost 40% above the previous year--on revenues of $306 billion. With minimal debt, the oil giant, based in Irving, Texas, is sitting on a $30 billion hoard of cash. The problem: What will the company do with all that loot?
It is a question that oil watchers, policymakers and, of course, ExxonMobil shareholders are buzzing about. Will the company loosen its purse strings and go on a buying spree? Will it return all that cash to shareholders? Or will the company continue to salt away the dollars for a rainy day--and if so, for what specific purpose?
A company ExxonMobil's size routinely spends huge gobs of money. This year alone the company is expected to deploy some $16 billion on capital projects. Among other things, ExxonMobil is pushing heavily into the expanding market for liquid natural gas with a $7 billion gas-to-liquids foray in Qatar. But the company's projected capital spending is only $1 billion higher than last year, and even ceo Lee Raymond knows that some shareholders are frustrated that the company isn't being more aggressive about making investments. "When inevitably you ask me how we manage our cash, I will remind you that we take a long-term perspective," Raymond said to analysts recently. "First, we will not do anything stupid or silly. Secondly, don't expect us to take mechanistic or knee-jerk reactions."
Raymond is no dummy. The oil industry is the classic boom-and-bust business, and managing the booms can be as tough as getting through the busts. In previous periods of high oil prices, there has been an ugly history of overspending on poorly conceived projects that quickly soured. ExxonMobil seems determined not to fall into that trap. The company has produced industry-leading returns in recent years by not zigzagging with every change in oil prices. (It's worth noting that ExxonMobil's earnings are less tied to high prices than are those of other major oil companies.) To keep tabs on its spending, the company requires that all projects of $50 million or more--a small figure for a company of ExxonMobil's heft--must go before a five-member management committee for approval. "They've decided that throwing money at stuff doesn't make sense, unlike oil companies in the past that got high prices and went crazy," says Susan Byrne, chairman of Dallas-based Westwood Management, an investment firm that owns ExxonMobil shares. "They are not going to go on a spending spree."