ExxonMobil’s [XOM] share price is on the up. Growing demand for oil and gas has seen energy majors up across the board with ExxonMobil’s share price up more than 12% over the past month (through 15 October), and while that’s not as red hot as Shell’s [RDSB] 23% gain over the same stretch, that’s well above the wider S&P 500’s flat trading over the same stretch.
Yet, it’s easy to forget that this is a sector in transition as the world moves away from fossil fuels. Arguably Exxon has been slow to move, but its large investment in carbon capture technology could see it well-positioned to benefit as demand for the technology increases.
ExxonMobil’s share price and carbon capture technology
Rising commodity prices naturally have a correlation with ExxonMobil’s share price gain. Yet, with governments the world over putting ambitious targets on becoming carbon neutral, ExxonMobil also has to move with the times - something it's sometimes slow to do. For the shift to cleaner energy, the firm is looking towards carbon capture technology.
ExxonMobil Corp is building a $100 billion plant in Houston that is attracting a lot of attention. The plant could capture up to 76mn tonnes per annum (tpa) of CO2 by 2024. Eleven companies have expressed interest in working on the project.
Value of the CCS market by 2040, according to Exxon
Exxon reckons carbon capture will be huge, saying in March that it could be a $2tn market by 2040. Investing in the technology also helps Exxon dampen some of the criticism that it has been slow to diversify into renewables compared to rivals like Shell and BP. Last December, activist investment fund Engine Number One, whose members include the Church of England, demanded Exxon chart a course towards cleaner energy.
The technology has faced some setbacks, including a multi-billion dollar Mississippi plant that was demolished before it was operational. But costs are coming down, which is changing the perspective among investors.
Demand for carbon capture technology has soared over the last nine months, according to Global CCS Institute. The Melbourne think tank’s annual status report shows the capacity of planned projects has gone from 73 million tonnes a year at the end of 2020 to 111mn tonnes at the end of September. In the US alone there are 40 projects planned, while in Europe that number is 35.
ExxonMobil’s share price is a Buy, according to Goldman Sachs
As energy prices continue to surge, Goldman Sachs sees value in ExxonMobil, along with Occidental Petroleum [OXY] and Hess [HES]. Goldman Sachs has Buy ratings on all three stocks and believes that the long-term oil demand risks are “overstated”. On ExxonMobil, Goldman Sachs analyst Neil Mehta wrote:
“We believe the differentiated asset base, combined with our constructive oil view, will drive positive earnings revisions, as seen in the Q3 pre-announcement,” Mehta said. The analyst has a $68 price target, which would imply an 8.6% upside on Friday’s closing price of $62.59.
However, not everyone is a fan. BNP Paribas downgraded the stock from Hold to Underperform, pinning a $60 price target on the share price - hitting this would see a 4% downside on Friday’s close. As it stands, Exxon’s share price has an average $66.69 price target from analysts polled on Yahoo Finance - hitting this would see a 6.5% upside.
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