fluidsdoc has had some interesting articles on xom. He had this to say in one of them:
"The company's somewhat rich valuation in comparison to peers suggests that shares may be still a little richly valued. The flowing barrel price is also pretty high at $106K per barrel. Its Terminal Value is $950 bn, according to a recent DCF analysis performed by the Acquirer's Multiple, suggesting that on an absolute basis, the company could trade for roughly 2X is current rate or about $200 per share. That's not a figure we would expect to see any time soon, so don't hang your hat on it. No upstream energy company is trading anywhere near their terminal value at present, and won't in any scenario we can envision in the next few years."
According to Murti energy in general is still trading at about half of it's historical s&p 500 weight. Part of that is without a doubt due to extreme out performance of tech mag7. But considering how energy intensive AI is and how much reshoring of manufacturing is going to happen over the next few years I think we could see energy return to it's historical weight.
That's an optimistic view. The pessimistic alternative is that the collapse of the AI bubble will create a deep recession in the energy sector in the US.
The super majors are an across the board hard no for me. When a small company hires a bozo, the bozo is instantly recognized and eliminated. When a large company hires a bozo, that bozo brings in two more bozos and they proliferate. But eventually they do enough damage that the corporate immune system kicks in and the bulk of the bozos are eliminated. But in super majors, bozos proliferate and never go away, and sometimes they get the President's job (BP!) and drag the whole company into the dirt with them.
When I see one of my energy holdings investing in green projects I immediately want to know if this is solid management who is doing some perception management to appease the politics? Or is it a bozo whose gotten into a position of power? When SPG announced they were putting solar panels on their shopping malls, it was perception management. The investment was totally useless but it looked good to the green crowd on paper and in practice it was an amount so small as to be a rounding error. BP wasn't a rounding error.
I wish I could take credit for it, but it was in some management book I read and I read so many I don't remember which one. But its hard to forget something like "The Bozo Rule". But the company that put me through the training course based on the book was full of bozos. They could not see that.
My son works for... a ticker everyone would recognize. He runs a shop that welds stuff and the welds have to survive absurd amounts of deflection to meet regulatory approval. So they started failing spec. Management brings in a contractor to do welds while the engineers and metallurgists come up with a fix. Their fix is buy a new welder, the one your have is older than the oldest one in the industry museum in San Francisco. It is physically incapable of meeting the spec. A new welder is $3 million which head office refuses to spend. Beef up the old welder. In the meantime the metallurgy lab is pointing out that the old welder is achieving spec 75% of welds and the contractor is only meeting it 25% of all welds. Oh, and by the way, the contractor has been charging $8 million per MONTH for the last three months while we work on this. Still won't buy a new welder, they want the old one "fixed". So preventative maintenance on the infrastructure is on hold. Downtime on that infrastructure is $1.5 million per hour and they run 24X7.
Can't make this up, and I have dozens of customers who will tell you stories just as absurd.
For those following the horror story, my son came up with a way to adapt the power packs from the new welder to the old welder allowing for a $1 million rebuild of the old welder that would give it 99% of the capability of the new welder.
Management said no to that too.
My personal opinion being that someone high up in the company wants this portion of the business to fail so that it can be shut down and outsourced.
Just…wow. I have worked in manufacturing companies all my life, build factories, run them, closed them, and am now VP of finance so play a hugh part in capex allocations. I have seen my fair share in very bad strategic decision making, bad market approaches etc. But what you describe I have never ever experienced. Usually Operations people are pretty rational, and so are their bosses. Like RPD said, thats just tragic and hilarious
The problem btw, is incentive plans. Decision makers do what's best for their wallet. Oh there's the odd exception that does what's best for the company, but they are a rare breed (in sales courses, we're taught how to seek out and find those people). So a decision maker looks at their annual bonus and will lose it if they spend the $3 million. But opex is another manager's problem so....
I'd share more but I don't want to accidentally out my son. DM me if you want to know the ticker :-)
In the early 90's I was working for the 2nd biggest computer company in the world, Digital Equipment Corporation. We used to bring in high end speakers and invite customers to come and hear their insights. One guy came in and told multiple stories like the one above. One of them was about a company he did some consulting work for and discovered that in every office in the world there was one person who printed a giant fanfold paper report, 100 pages or so, every single morning, and left a copy on every manager's desk. The managers would come in every morning and throw the report in the trash. All the managers had green screens on their desks by then, they didn't need the printed report. The president was shocked and dismayed, but was so intrigued by this and other stories that he hired the guy to tour North America to tell that and other stories about total disconnects between management and the field to his customers. The worst part said the speaker, was that to this very day they are still printing those reports.
After he spoke I approached him privately and said quietly "that idiot company still printing the reports... its us, isn't it?" He smiled and said I was the first person from DEC that figured that part out in all the cities he had presented in.
I realized then that this company was doomed. We had half a dozen managers in one field office that had only one person reporting to them. And THEY had managers in the same office they reported to ALSO as the only one. Management talked constantly about how long it would be, not if, just how long, before we were bigger than IBM. Sales had declined four years in a row, and they were STILL hiring as if they were growing because they would need all those people "when we become bigger than IBM".
I'm just scratching the surface here. I worked for SUN Microsystems too. I could fill a book with these stories.
Hey Paul. Thanks for sharing your thoughts here. What do you think of upstream M&A as regards delivering value to investors? The words "accretive." and "synergy," are used frequently. Exxon today is worth less than before it shelled out $65 bn for PXD. Where is the accretion? Cheers from down south.
Hey Dave. Thanks for stopping by. On the PXD merger from May 2024, it seems early to tell. I certainly don't expect Mr. Market to tell us. But XOM really doesn't either. Their summary says that they got synergies and pushed down cost. But granular details are not to be seen. However, for companies so big and complex, I think the chances of finding truth from some analysis of what is disclosed are not great. So we fall back on "it has worked out on average over time, and likely will now too."
The lack of detail in a form that helps me really understand is part of why supermajors are unlikely to ever be huge holdings for me.
Beware of hot rocks and of rattlesnakes in the shade. Scorpions, too, but I don't know where they lurk. No danger of snow here for at least 6 weeks...
That last line in your first para is a favorite of mine.😁 I've been pondering some of this stuff. I am not long the big guys either. I'm hanging out in the AC. Too hot to play with the snakes and scorpions down here. Cheers, Dave
fluidsdoc has had some interesting articles on xom. He had this to say in one of them:
"The company's somewhat rich valuation in comparison to peers suggests that shares may be still a little richly valued. The flowing barrel price is also pretty high at $106K per barrel. Its Terminal Value is $950 bn, according to a recent DCF analysis performed by the Acquirer's Multiple, suggesting that on an absolute basis, the company could trade for roughly 2X is current rate or about $200 per share. That's not a figure we would expect to see any time soon, so don't hang your hat on it. No upstream energy company is trading anywhere near their terminal value at present, and won't in any scenario we can envision in the next few years."
https://seekingalpha.com/article/4777379-exxon-mobil-doged-and-confused
Thanks for sharing that. One approach is certainly to own the good dividend payers in upstream energy and be prepared to wait a few years.
According to Murti energy in general is still trading at about half of it's historical s&p 500 weight. Part of that is without a doubt due to extreme out performance of tech mag7. But considering how energy intensive AI is and how much reshoring of manufacturing is going to happen over the next few years I think we could see energy return to it's historical weight.
That's an optimistic view. The pessimistic alternative is that the collapse of the AI bubble will create a deep recession in the energy sector in the US.
The super majors are an across the board hard no for me. When a small company hires a bozo, the bozo is instantly recognized and eliminated. When a large company hires a bozo, that bozo brings in two more bozos and they proliferate. But eventually they do enough damage that the corporate immune system kicks in and the bulk of the bozos are eliminated. But in super majors, bozos proliferate and never go away, and sometimes they get the President's job (BP!) and drag the whole company into the dirt with them.
When I see one of my energy holdings investing in green projects I immediately want to know if this is solid management who is doing some perception management to appease the politics? Or is it a bozo whose gotten into a position of power? When SPG announced they were putting solar panels on their shopping malls, it was perception management. The investment was totally useless but it looked good to the green crowd on paper and in practice it was an amount so small as to be a rounding error. BP wasn't a rounding error.
I love it! The theory of bozo proliferation. Good point.
Yet it’s still in our portfolio.🤡
I'm trusting the track record. That might prove to be a mistake, or not. And no way this becomes a dominant position for me.
I wish I could take credit for it, but it was in some management book I read and I read so many I don't remember which one. But its hard to forget something like "The Bozo Rule". But the company that put me through the training course based on the book was full of bozos. They could not see that.
My son works for... a ticker everyone would recognize. He runs a shop that welds stuff and the welds have to survive absurd amounts of deflection to meet regulatory approval. So they started failing spec. Management brings in a contractor to do welds while the engineers and metallurgists come up with a fix. Their fix is buy a new welder, the one your have is older than the oldest one in the industry museum in San Francisco. It is physically incapable of meeting the spec. A new welder is $3 million which head office refuses to spend. Beef up the old welder. In the meantime the metallurgy lab is pointing out that the old welder is achieving spec 75% of welds and the contractor is only meeting it 25% of all welds. Oh, and by the way, the contractor has been charging $8 million per MONTH for the last three months while we work on this. Still won't buy a new welder, they want the old one "fixed". So preventative maintenance on the infrastructure is on hold. Downtime on that infrastructure is $1.5 million per hour and they run 24X7.
Can't make this up, and I have dozens of customers who will tell you stories just as absurd.
For those following the horror story, my son came up with a way to adapt the power packs from the new welder to the old welder allowing for a $1 million rebuild of the old welder that would give it 99% of the capability of the new welder.
Management said no to that too.
My personal opinion being that someone high up in the company wants this portion of the business to fail so that it can be shut down and outsourced.
Just…wow. I have worked in manufacturing companies all my life, build factories, run them, closed them, and am now VP of finance so play a hugh part in capex allocations. I have seen my fair share in very bad strategic decision making, bad market approaches etc. But what you describe I have never ever experienced. Usually Operations people are pretty rational, and so are their bosses. Like RPD said, thats just tragic and hilarious
The problem btw, is incentive plans. Decision makers do what's best for their wallet. Oh there's the odd exception that does what's best for the company, but they are a rare breed (in sales courses, we're taught how to seek out and find those people). So a decision maker looks at their annual bonus and will lose it if they spend the $3 million. But opex is another manager's problem so....
I'd share more but I don't want to accidentally out my son. DM me if you want to know the ticker :-)
In the early 90's I was working for the 2nd biggest computer company in the world, Digital Equipment Corporation. We used to bring in high end speakers and invite customers to come and hear their insights. One guy came in and told multiple stories like the one above. One of them was about a company he did some consulting work for and discovered that in every office in the world there was one person who printed a giant fanfold paper report, 100 pages or so, every single morning, and left a copy on every manager's desk. The managers would come in every morning and throw the report in the trash. All the managers had green screens on their desks by then, they didn't need the printed report. The president was shocked and dismayed, but was so intrigued by this and other stories that he hired the guy to tour North America to tell that and other stories about total disconnects between management and the field to his customers. The worst part said the speaker, was that to this very day they are still printing those reports.
After he spoke I approached him privately and said quietly "that idiot company still printing the reports... its us, isn't it?" He smiled and said I was the first person from DEC that figured that part out in all the cities he had presented in.
I realized then that this company was doomed. We had half a dozen managers in one field office that had only one person reporting to them. And THEY had managers in the same office they reported to ALSO as the only one. Management talked constantly about how long it would be, not if, just how long, before we were bigger than IBM. Sales had declined four years in a row, and they were STILL hiring as if they were growing because they would need all those people "when we become bigger than IBM".
I'm just scratching the surface here. I worked for SUN Microsystems too. I could fill a book with these stories.
Thanks @dmh555 for sharing your horror stories.
So tragic but hilarious anyway.
Thanks for sharing
Hey Paul. Thanks for sharing your thoughts here. What do you think of upstream M&A as regards delivering value to investors? The words "accretive." and "synergy," are used frequently. Exxon today is worth less than before it shelled out $65 bn for PXD. Where is the accretion? Cheers from down south.
Hey Dave. Thanks for stopping by. On the PXD merger from May 2024, it seems early to tell. I certainly don't expect Mr. Market to tell us. But XOM really doesn't either. Their summary says that they got synergies and pushed down cost. But granular details are not to be seen. However, for companies so big and complex, I think the chances of finding truth from some analysis of what is disclosed are not great. So we fall back on "it has worked out on average over time, and likely will now too."
The lack of detail in a form that helps me really understand is part of why supermajors are unlikely to ever be huge holdings for me.
Beware of hot rocks and of rattlesnakes in the shade. Scorpions, too, but I don't know where they lurk. No danger of snow here for at least 6 weeks...
That last line in your first para is a favorite of mine.😁 I've been pondering some of this stuff. I am not long the big guys either. I'm hanging out in the AC. Too hot to play with the snakes and scorpions down here. Cheers, Dave