Citigroup Maintains a Buy on Exxon Mobil (XOM)

Citi is out with a report today which discusses Exxon Mobil's XOM reserves after its merger with XTO Energy. Given by XOM's preliminary report for 2010, overall proved reserves (excluding those of XTO) had decreased to 22 billion boe from an estimated 22.9 billion, mostly due to decreased natural gas reserves. The decrease is attributed to the increased production in Qatar, high demand for gas in Europe, and a lack of new gas projects moving to FID in 2010. Citi analysts estimate that XTO reserves increased to 2.8 billion boe from 2.5 billion, the rise being attributed to increased drilling activity. Total XOM reserves are now 24.8 billion boe and are comprised of 47% oil and 53% natural gas. The Citi report states that contrary to the claims of recent media reports, XOM's gas production is not a low margin business. This is evidenced by the company's 4Q10 per unit profitability, which remains one of the highest in the group. Risks include a pullback in oil prices, higher tax production mix, and changes in the fiscal terms of the many high-risk countries in which Exxon Mobil operates. Citi analysts rate XOM Medium Risk and maintain a Buy rating with a price target of $90. It is trading at $83.48.