It's hard to find too many bad things to say about Exxon Mobil (NYSE:XOM). Not only does Exxon have the best historical returns on capital of the energy majors, the company also has established itself as an efficient converter of oil and gas to cash flow and dividends. Though costs are rising, returns on energy projects are falling, and production growth is not looking very robust. Exxon can still fill a role as a go-to energy major for investors who want exposure to the energy space.

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OK Results to Close the Year
Exxon's fourth quarter results were not all that bad, but neither were they as good as they appeared to be at first glance. After adjusting out an array of items (LIFO gains, asset sale gains, etc.), the company's fourth quarter earnings appeared in-line to slightly below the average estimate.

Overall revenue declined 5%, with the company's E&P operations seeing 5.2% lower production and flat year-on-year realizations. Like many other energy companies, Exxon has re-prioritized oil and liquids (production down 2%) over natural gas (production down 2.8%).

On a segment basis, E&P earnings were down 12.09% from the year-ago level, and unit profitability fell 7% to just under $20 per barrel of oil equivalent (BOE). Chances are good that this will leave Exxon near the top of the list of energy majors alongside Chevron (NYSE:CVX).

Exxon's volatile refining and chemical businesses both reported major year-on-year improvements in segment earnings. Refining saw 316% growth, while chemical earnings improved 76%. While the chemical business is helped by relatively low NGL prices, Exxon's U.S. refining results aren't quite as good as the performance of peers like Valero (NYSE:VLO) might suggest, due in large part to a greater reliance on imported oil.

SEE: Oil And Gas Industry Primer

Production Always the Worry
It doesn't matter which energy major you talk about, a central talking point is the sluggish outlook for production growth. In Exxon's case, low single-digit growth is the likely outcome over the next three to five years. Projects like Kearl (which the company is developing with its majority-owned partner Imperial Oil (AMEX:IMO) will certainly add to the company's portfolio. But in reality, there just isn't the capital, equipment or capacity to bring everything on line at once. What's more, it just gets harder and harder for a company of Exxon's size to find fields/projects that can add substantially to its incremental production.

Are the Good Times Gone for Good?
One of the likely long-term realities for energy majors like Exxon, Chevron and BP (NYSE:BP) is that returns on energy projects developed are in decline. It's still profitable for these companies to operate, just less so than in the past. For instance, Exxon Mobil's three-year finding and development cost now comes close to $20/boe; and while companies like Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) have done much to improve oil/gas recovery and production, that too costs money.

I do wonder when Exxon will go back to M&A as a means of growth. It's an industry-wide phenomenon to swing between growth through the drill bit and growth through M&A as conditions change, and prior deals (like those for XTO and Celtic) did give Exxon valuable positions in important energy-producing areas. To the extent that Exxon can negotiate better prices with the service companies and achieve better well economics, additional deals could be a win-win from the perspective of increasing reserve and production growth, while not overly compromising per-BOE margins.

SEE: 5 Biggest Risks Faced By Oil And Gas Companies

The Bottom Line
Exxon has long enjoyed a premium multiple due to its well-established reputation as a good capital allocator and a strong operator. Those factors are still in place, but I would argue that companies like Chevron have closed the gap to a significant degree.

The end result is that Exxon does not look like a particularly good value today. With fair value in the low to mid $90s, Exxon isn't a bad holding in the energy space, particularly for investors looking to "check a box" with a less-volatile stock. But a little shopping can turn up better ideas.

At the time of writing, Stephen D. Simpson did not own any shares in any company mentioned in this article.

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