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The incredible shrinking Exxon – WSJ



Exxon Mobile


XOM -3.54%

put an exclamation mark on Friday, which hurts the big oil.

The immediate reaction to the somewhat lukewarm results of the first quarter is not objectionable. Despite the announcement of the 36th annual dividend increase in succession, the total shareholder return of the world's largest private oil company remained unchanged last year, despite crude oil prices rising more than 50%.

One has to look back a little further in time to explain this dichotomy. Ten years ago, at the beginning of the shale boom, Exxon's stock market value could have been paid for technology giants

Apple

Amazon and what was then called Google and left $ 1

00 billion. The energy sector accounted for 14% of the S & P 500. Today it is barely 6% and Exxon is less than half of a technology titan worth less than half each.

Demand is not the problem. Global crude oil consumption has increased 16% in a decade, and demand for natural gas has even increased. Instead, the economics of oil and gas production has changed.

For decades, huge oil companies like Exxon,

Chevron

BP and Shell were blocked by the most lucrative oil fields controlled by state-owned companies such as Saudi Aramco. The slate revolution in North America gave private companies an opening to boost production at much less risk than in the past.

Exxon Chief Executive

Darren Woods

say it well last year: "This part of the business is not in discovery mode, it's in extraction mode."

But a lower beam means lower yields as well. Exxon has delivered its best return on invested capital since 2014, the last time crude oil prices were in the triple digits, but 2017 was barely a quarter of what it had done a decade ago.

Exxon is still playing its strengths as a capital distributor with promising mega-projects in Guyana, Brazil and Papua New Guinea. It is also integrated so that refining and chemical gains can smooth the cyclicity of raw material production.

The big exploration risks are still paying off, but now Exxon is taking less of them. The result is, the rewards for shareholders are more modest. Get used to it.

Write to Spencer Jakab at spencer.jakab@wsj.com


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