Behind ExxonMobil’s Leverage Trend


Sep. 15 2017, Updated 9:06 a.m. ET

ExxonMobil’s leverage compared to peers

ExxonMobil’s (XOM) net-debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at 1.4x in 2Q17, which was below the peer average of 1.6x. The peer average considers 11 integrated energy companies globally.

In 2Q17, XOM’s total-debt-to-capital ratio stood at 18%, which was below the peer average of 37%. The ratio shows a firm’s leverage as a percentage of its total capital—a snapshot of its capital structure.

Chevron’s (CVX) total-debt-to-capital ratio stood at 23% in 2Q17. However, Royal Dutch Shell (RDS.A) and BP’s (BP) ratios stood higher at 32% and 39%, respectively, in 2Q17.

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ExxonMobil’s leverage: net-debt-to-adjusted EBITDA

ExxonMobil’s (XOM) net debt-to-adjusted EBITDA ratio rose from 0.7x in 2Q15 to 1.4x in 2Q17. Before analyzing this rise in ratio, let’s understand the net debt trend.

XOM’s net debt has risen 28% over 2Q15 to $37.8 billion in 2Q17 due to a rise in its total debt, coupled with a fall in cash and equivalents during the period. Its total debt rose 24% over 2Q15 to $41.9 billion, while its cash and equivalents fell 7% over 2Q15 to $4.0 billion in 2Q17.

From 2Q15 to 2Q17, XOM’s adjusted EBITDA has declined, and so the rise in net debt coupled with a fall in EBITDA led to an increase in the net debt-to-EBITDA ratio.

What does ExxonMobil’s leverage analysis suggest?

Over the past few years, XOM has faced the heat of lower oil prices, leading to a rise in its debt. Still, XOM’s total-debt-to-capital ratio stood lowest in the integrated energy industry. Meanwhile, over the past few quarters, ExxonMobil’s net-debt-to-adjusted EBITDA ratio has fallen due to better upstream earnings led by higher oil prices. This led to better cash flows, resulting in a reduction in its net debt.

Thus, with its lower total-debt-to-capital ratio and the recent decline in net-debt-to-adjusted EBITDA ratio, XOM looks comfortably placed on the leverage front.


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