Exxon's (XOM) 2016 Reserve Estimates Lowered: Here's Why

Exxon Mobil CorporationXOM , the largest publicly traded oil company in the world, recently declared that it has lowered its 2016 proved reserve estimates to quite an extent owing to low commodity prices during the greater part of the last year.

The company's 2016 proved reserve estimate now stands at 20 billion barrels of oil equivalent (BBOE), which is 19.4% lower than the 2015 reserve figure of 24.8 BBOE. The company was able to replace only 65% of oil and natural gas production with new discoveries. Meanwhile, Chevron Corporation CVX - a smaller rival of Exxon Mobil - replaced 95% of the reserves it pumped out in 2016.

Clearly, the prolonged crude weakness has severely affected Exxon Mobil. This is evidenced by the fact that the company, which successfully replaced no less than 100% of its reserves for more than two decades till 2015, has failed in maintaining the trend in the last two years.

Irving, TX-based ExxonMobil is the world's best run integrated oil company based on its track record of high return on capital (ROC) employed. Our research shows that the average trailing 12-month ROC for Exxon Mobil is 5.2%, which is much higher than 2.5% for both Royal Dutch Shell plc RDS.A and the Zacks categorized Oil & Gas-International Integrated industry. ROC for Chevron and BP Plc BP of 0.7% and 2.2%, respectively, are also considerably lower than Exxon Mobil.

However, Exxon Mobil's share price performance is not that encouraging. During the last one year, the company's shares lost 0.3% compared with 14.1% improvement by the broader industry.

Presently, ExxonMobil carries a Zacks Rank #3 (Hold). This implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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