ExxonMobil’s Bad & Good: Production Down 3%, Yield Up?

ExxonMobil is looking for a 3% decline in production this year, and the Street isn’t particularly enthused with that news coming out of the company’s annual analyst day.

Shares of the integrated exploration, production and refining giant ExxonMobil (XOM) fell 1% Thursday, and the stock is flat to down a few pennies today at around $84.78 in an otherwise up market. Year to date, Exxon has underperformed other big integrated oil companies

While production will be lower compared to 2011, expenses of $37 billion now projected for 2012 are at the high end of the previously stated range of $33 to $37 billion. the company is bullish on natural gas long term, but like everyone else drilling on U.S. land, it is emphasizing a production shift to liquids, from natural gas.

Exxon’s positives, highlighted by analysts at Simmons & Co.

• A dividend increase is possible, given free cash flow generation that could be the best in the peer group over next 5 years.
• Exxon has the industry’s leading return on capital employed, despite dilution from its XTO acquisition.
• It has divested $26 billion in assets over the past five years.
• Its U.S. chemicals exposure is under-appreciated

And negatives, or potential risks:

• The 3% decline in production year over year.
• The risk of a big acquisition to boost production,which might weigh on profits.
• Three consecutive upstream earnings misses.
• Above-average upstream exposure to weak natural gas prices.
• While Exxon completed capital projects between 2007 and 2011 within 3% of budget, that’s down from the 2006-2010 average of 1%.

This chart shows that Exxon shares have underperformed most large competitors so far this year, with Chevron being the big winner among the U.S. largecap integrateds over 12 months. Companies are ranked by market capitalization: