Energy giant ExxonMobil has called off the sale of its oil and gas assets in the Bass Strait in Australia, according to the Australian Financial Review.
The company had placed the Bass Strait assets for a potential sale last year. However, the weak energy demand amid the pandemic seems to have impacted the value of the assets. The Australian Financial Review indicated that Exxon (XOM) canceled the divestment due to the absence of attractive bids. The company made the decision just six weeks after the deadline for indicative bids for the portfolio set by the deal adviser JPMorgan.
“After completing an extensive market evaluation, ExxonMobil has decided to retain its operated Gippsland Basin producing assets in Australia,” stated a spokesman for Esso Australia (Australian affiliate of Exxon). (See XOM stock analysis on TipRanks)
Meanwhile, commenting on the vaccine-fueled rally in Exxon and other oil stocks, Raymond James analyst Pavel Molchanov stated, “While this rising tide naturally lifts all boats, Exxon included, even the more upbeat oil price landscape implied by the futures curve is still not enough for Exxon to fund its dividend entirely from operating cash flow.”
“Thus, as had been the case three months ago, the company faces a rather unenviable choice: (1) break its pledge and take on some more leverage, which is feasible but would cost management credibility; (2) sell assets at what are likely to be suboptimal valuations and use the proceeds to support the dividend, which is also plausible -and, in fact, the most probable solution, in our view – but is hardly sustainable; or (3) the radical approach of cutting the dividend, which we do not believe will happen at least over the next 12 months – even though there is an ESG-related scenario where it could work,” added Molchanov. The analyst reiterated a Sell rating based on these factors and “structural flaws in Exxon’s asset base.”
The rest of the Street is sidelined on the stock, with a Hold analyst consensus based on 2 Buys, 7 Holds and 1 Sell. Shares have plunged 42.4% so far this year. The average price target stands at $40.75, reflecting a modest upside potential of 1.34% from current levels.
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