Exxon Mobil, the largest U.S. oil company, will probably make another large acquisition within the next decade, according to a Deutsche Bank note. Major oil producers are struggling to cope with dwindling reserves and for cash-rich companies like Exxon, acquisitions make sense as an avenue for bolstering reserves.
The company itself is the combination of the late 1990s marriage of Exxon and Mobil. Exxon is currently in the process of acquiring natural gas producer XTO Energy (XTO) for $41 billion. Deutsche Bank expects Exxon (XOM) to forecast 2010 production growth of 5% at its analyst day this Thursday.
The Deutsche Bank note did not discuss specific candidates that Exxon may acquire in the coming years, but did say logical regions for Exxon would include Russia and Brazil, though a deal in Brazil would most likely have to be done through a joint venture. Despite Exxon's foray into natural gas with the XTO acquisition, Deutsche Bank believes the company's focus will remain on oil production and exploration.
At the end of 2009, Exxon had $30 billion in operating cash and $6.6 billion in levered free cash flow, giving the company one of the strongest balance sheets in the oil industry. Deutsche Bank has an $80 price target on the stock, which represents about 20% upside from where the shares closed on Monday.
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