This article first appeared on GuruFocus.
Exxon Mobil (NYSE:XOM), the integrated oil-and-gas producer, rose approximately 1.5% to $167.42 Tuesday morning as Brent crude pushed above $105 per barrel and investors priced in tighter global energy supplies. That strength came even as a power failure forced Exxon’s 264,000-barrel-per-day Joliet refinery into a plant-wide shutdown. The market is effectively betting that stronger crude economics can outweigh the near-term hit from one disrupted refinery.
Joliet is a meaningful asset, capable of producing roughly 11 million gallons of gasoline and diesel each day. But Exxon has plenty of financial muscle behind it. Its second-quarter results showed $23.6 billion of operating cash flow and $17.2 billion of free cash flow, while $9.4 billion went back to shareholders through dividends and buybacks. That means distributions consumed about 54.7% of quarterly free cash flow, leaving Exxon with substantial room to absorb temporary operational setbacks without immediately compromising shareholder returns.
The valuation picture is less forgiving. GuruFocus data shows Exxon at $167.42 versus a GF Value estimate of $127.76, putting the shares about 31.04% above that benchmark. That premium says investors are already paying heavily for strong oil prices, cash generation and Exxon’s integrated model. The Joliet shutdown therefore matters less as a balance-sheet threat and more as a test of execution: with crude above $100 and the stock trading well above GF Value, Exxon needs to keep as much of that favorable commodity backdrop flowing through to actual earnings as possible.
