Analyst downgrades Exxon Mobil shares, citing weak natural gas prices

Exxon Mobil downgraded on weak gas prices

NEW YORK — An RBC Capital Markets analyst on Tuesday downgraded Exxon Mobil Corp. shares, citing the oil giant’s increased dependency on the relatively weak natural gas market. Other major petroleum companies also will deal with declining natural gas prices, he said, but to differing degrees since some depend on natural gas more than others.

Exxon Mobil became the largest U.S. natural gas company when it bought XTO Energy this year. The acquisition was initially lauded as an aggressive move into an energy source that’s considered one of the cleaner, more abundant fossil fuels in the country.

But natural gas prices have held relatively low compared to crude oil as the industry expands into America’s shale gas deposits.

RBC analyst Jacques Rousseau said declining natural gas prices will hurt Exxon’s earnings and market valuation. The analyst downgraded Exxon shares to “Sector Perform” from “Outperform” and lowered his 12-month price target to $70 from $76 per share.

ConocoPhillips was rated as “Outperform” with a $65 per share price target and Marathon was rated as “Sector Perform” with a $35 per share target.

RBC said Chevron Corp. should significantly outperform the sector and listed a $93 per share target for the next 12 months. Chevron’s oil and gas production business should enjoy larger profits per barrel than Exxon in the next two years, Rousseau said. The analyst rates Chevron a “Top Pick.”

Natural gas prices are currently trading at less than $4 per 1,000 cubic feet on the New York Mercantile Exchange. That’s higher than the same time last year but only about half of what natural gas traded for in 2008.

Rousseau added that with its capital budget at about $30 billion per year until at least 2014, Exxon may not have enough cash to increase its share repurchase program. The company may cut the program to $2 billion per quarter if natural gas prices stay this low, he said.

Exxon shares gave up 3 cents to $60.97 in morning trading. Chevron Corp. added 22 cents to $79.47, ConocoPhillips lost 20 cents to $55.18 and Marathon lost 15 cents to $32.10 per share.