XOM in the tank, but is it half-full or half-empty?

We recently looked into the accommodation Exxon Mobil Corp. (XOM) made with its retiring CEO Rex Tillerson when he was nominated by President Trump to be the 69th U.S. Secretary of State.  The primary issue entailed compensating Mr. Tillerson for the $184 million worth of unvested restricted stock units (RSUs) awarded to him over the course of his tenure.

InvestorPlace observes that the performance of XOM common over the past decade, during which Mr. Tillerson was at the helm, appears rather unimpressive. Over that time, including dividends, XOM stock has returned 49% — total, which breaks out to an average return of just 4% per year, well below the S&P 500.  Over the past five years, the XOM common fared even worse, declining over that period.  Including dividends, XOM has averaged just a 1.8% return since 2012.

Alternatively, it could be argued that positive five- and 10-year returns for XOM stock in fact are quite impressive.  West Texas Intermediate (WTI) crude oil prices peaked at $99 in 2007 and averaged $94 in 2012.  WTI now trades at half those 2007 levels.

Owing to the consequent heavy pressure on revenues, a number of oil companies have gone bankrupt; many other oil stocks trade at a fraction of their former value.  In that context, the fact that Exxon Mobil stock has returned anything at all appears to reflect excellent performance.  After all, most oil and gas stocks have done worse – some considerably so.

Some corporate governance experts maintain that such cases illustrate that the circumstances and idiosyncrasies of particular industries, often persisting for extended periods, must be taken into account in setting and assessing executive pay.  Merely comparing a company's shareholder returns to that of broad indexes does not give the full picture of the job the CEO, and other top execs, did.  At times, it's wisest for the person at the helm to order the crew to batten down the hatches to ride out the storm.

Of course, the performance of XOM stock over the past 10 years poses a serious challenge for the company and its management going forward.  Exxon Mobil common performed much better than most peer companies in the O&G sector during a period of falling oil prices.  But it clearly didn’t perform well.  Regardless where oil goes from here, there are likely better choices than XOM.  But that's a topic to another day.

Robert Stead