From: Douglas Grandt answerthecall@icloud.

com
Subject:The naked truth about milking an oily cash cow dry
Date:March 21, 2018 at 2:21 PM
To:Brian Hughes (Senate ENR Ctee-R) Brian_Hughes@energy.senate.gov, David Poyer (Senate ENR Ctee-D)
david_poyer@energy.senate.gov, Michael Pawlowski (Sen. Murkowski) michael_pawlowski@murkowski.senate.gov,
Travis Lumpkin (Sen. Cantwell) Travis_Lumpkin@cantwell.senate.gov
Cc: U. S. Senator Bernie Sanders senator@sanders.senate.gov, Michaeleen Crowell (Sen. Sanders)
Michaeleen_Crowell@sanders.senate.gov, Katie Thomas katie_thomas@sanders.senate.gov

Dear Chairman Lisa Murkowski and Ranking Member Maria Cantwell,

.
You two as the leaders of ENR had better pay attention to this.
.

I don’t know how clear it has to be to get your full attention.

.

You must address the financial viability of ExxonMobil.

.

This is a house of cards built on smoke and mirrors.

.

If it crumbles, you two will shoulder the blame.

.

I will come visit you in DC very soon.

.

This is just too important!

.

Sincerely Yours,
Doug Grandt

Exxon Mobil Think Again

Mar. 21, 2018 12:58 PM ET | 20 comments | Bit.ly/ALOHA21Mar18

General Electric's (NYSE:GE) collapse should have served as a reminder that

buying a company based solely on past reputation and dividend yield is a
dangerous endeavor. GE is also a great example that dividends are not paid
out of earnings, especially massaged-to-death non-GAAP earnings, but from
free cash flows. GE's non-GAAP earnings were double its dividend payment.

This brings us to another American icon of the past: ExxonMobil (NYSE:XOM).

It was clearly one of the most respected oil companies in the world. Its stock
was passed from generation to generation, with a deathbed whisper "Never
sell Exxon." And for a long period of time, if you listened to that whisper, you
grew richer as Exxon continued to grow its earnings, raise its dividend, and
buy back stock.

These days are long gone. Today Exxon is riding slowly into the sunset.

The company has been in self-liquidation, but investors never got the memo.
Over the last ten years ExxonMobil spent $275 billion returning money to
shareholders through dividends and stock buybacks, while it earned $318
billion of net income. On the surface these numbers look great.
billion of net income. On the surface these numbers look great.

There is only one problem: - Exxon's reported earnings dramatically overstate

the company's true earning power. Finding new oil and extracting it has
become much more expensive, and thus Exxon's capital expenditures - the
cash it spends on replenishing reserves and extracting - oil significantly
exceed the company's depreciation expense (an income statement number).

ExxonMobil's cumulative free cash flows - the cash earnings left after the
company has paid for replenishing reserves and extraction - were only $183
billion over the last ten years, not enough to cover its giant, ten-year $275
billion return of capital to shareholders - a shortfall of almost $100 billion. To
finance dividends and buybacks, Exxon had to leverage its balance sheet.
Over ten years the company went from floating on $24 billion of (net) cash to
drowning in $38 billion of net debt.

But it gets worse. "Over the last ten years ExxonMobil replaced 82 percent of
produced volumes. ExxonMobil's reserves life at current production rates is 13
years." That comes directly from Exxon's 2016 annual report. 2017 was not
better for Exxon, either -oil production was down 3%.

What is truly amazing is that ExxonMobil investors' vision is so thoroughly

obfuscated by the company's "better than bonds" dividend yield of 4%. Let
me tell you what it "obfuscates." Today investors are paying $330 billion for a
company that earned $15 billion in 2017, or about 22 times earnings. Okay,
not cheap for a company that has been selling fewer and fewer barrels of oil
every year, but maybe not worth my spilling digital ink over.

But it gets worse - much worse. Exxon's 2017 free cash flow was only $7
billion (the same number as in 2016, when oil prices were low - in 2017
prices rebounded), thus putting its price to free cash flow multiple at around
47. That 4% dividend that investors are so magnetized by cost the company
$13 billion in 2017. And, yes, $6 billion of that dividend was subsidized by
bond holders (again).

If you are buying Exxon stock today you betting that oil prices will rise and
ExxonMobil's financial situation will improve considerably, even though its
production will continue to decline.

If oil prices remain at current levels, at some point bond investors will lose
their willingness to support this shrinking enterprise. The dividend will get cut
and investors will wake up to the rude awakening that they paid a lot for very
little. But imagine what will happen if we enter into a recession and oil prices
take a turn for the worse.

GE retaught investors the great lesson that things that cannot go on forever
don't. Hopefully, ExxonMobil investors will heed that lesson.

https://seekingalpha.com/article/4158069-exxon-mobil-think